Shoewear giant Skechers USA Inc has settled charges with the SEC for failing to report certain financial transactions involving executives and their relatives, the agency announced yesterday. The California-based company will pay a $1.25m civil penalty following allegations it did not disclose payments benefiting executives’ family members and outstanding loans to executives.
The SEC’s findings revealed that between 2019 and 2022, Skechers did not meet disclosure requirements concerning related person transactions. Specifically, the company did not reveal employment of two executive relatives and a consulting arrangement with an individual living with one of its executives. Two executives received $210,000 and the. third $213,645.
The company also failed to report over $120,000 in personal expenses covered by it but not reimbursed by two of its executives.
“Disclosure of related person transactions provides important information for investors to evaluate the overall relationship between a company and its officers and directors. Today’s action is a reminder that companies should take appropriate measures to ensure proper disclosure of such transactions,” said Scott Thompson, associate director of enforcement in the SEC’s Philadelphia regional office.
Reg S-K
The SEC’s order states that Skechers violated reporting and proxy solicitation provisions of the Securities Exchange Act of 1934.
Exchange Act registrants filing Forms 10-K must supply to the SEC the information required by Item 404 of Regulation S-K. The information required is a description of transactions since the beginning of the registrant’s last fiscal year in excess of $120,000 in which the registrant was a participant and any “related person had or will have a direct or indirect material interest”.
For purposes of Item 404, a “related person” includes any director or executive officer of the registrant, and any immediate family members of the directors or executive officers of the registrant. “[I]mmediate family members” include siblings and siblings-in-law of directors or executive officers as well as any person (other than a tenant or employee) sharing the household of a director or executive officer.
Disclosure of related person transactions “involving the employment of immediate family members” is required “when the threshold for disclosure has been met and the immediate family member has or will have a direct or indirect material interest”.
Skecher’s statement
“We are pleased that the Securities and Exchange Commission recognized our cooperation and remedial efforts, and we were able to come to an amicable resolution. This outcome is consistent with the results of our previously announced internal review and the corrective disclosures made over the course of last year,” a Skechers spokesperson said in an emailed statement to Seeking Alpha.
The case highlights the necessity for companies to ensure proper disclosure of such transactions with specific policies and responsibilities assigned to ensure oversight over these processes, plus technology to alert the business when such reporting has not occurred. Prompt messaging and disciplinary action after infractions – no matter the seniority of the employees involved – will strongly reinforce that messaging.
And like any other policy, it needs to be communicated at intervals, reinforced with training, and updated as rule changes require.