Without admitting or denying the U.S. Securities and Exchange Commission’s findings, Polycom Inc. settled with the agency on Tuesday, March 31, 2015, over alleged insufficient internal controls and disclosure violations for personal perk expenses. Andrew Miller, Polycom’s former CEO, traveled to Indonesia and South Africa with his girlfriend, took limousine rides, and purchased dress shirts, spa treatments, and tickets to musicals and sporting events − all on the company’s dime. His expenditures are detailed in the settlement order and in the SEC’s complaint against Miller, filed in U.S. District Court on the same day as the SEC issued its order. The agency found that Miller’s improper reimbursement for personal expenses caused Polycom to report false information on its proxy statements and annual filings. Polycom has agreed to pay a civil penalty of $750,000 for its violations of securities laws. The SEC will pursue its case against Miller individually in federal court.
Ironically, Miller imposed stricter controls on travel and expenditures during his tenure as CEO. In 2013, Miller resigned after accepting responsibility for irregularities in expense submissions. In its complaint, the SEC alleges that Miller’s concealment of perks resulted in personal violations of several provisions of the federal securities laws, including anti-fraud, proxy solicitation, periodic reporting, false certification, false books, and records and internal controls provisions. The SEC is seeking to enjoin Miller from committing future violations, bar Miller from serving as an officer or director of a public company, and require him to disgorge ill-gotten gains as well as pay civil monetary penalties.
The SEC found that Polycom lacked the internal controls to prevent Miller from concealing perks. Miller submitted false business descriptions, approved his own expenses by submitting them through his administrative assistants and charged airline flights to the company with no description of purpose. As a result, Polycom’s filings incorrectly reflected that $190,000 of Miller’s charges were business expenses rather than compensation.
The Exchange Act’s recordkeeping provisions require reporting companies to make and keep books that accurately reflect transactions and the disposition of assets, and to maintain sufficient accounting controls to provide reasonable assurances that transactions are executed with management’s authorization. Item 402 of Regulation S-K also requires the disclosure of perquisites provided to executive officers by type, if the perquisites amount to $10,000 in a given year. Perquisites greater than $25,000, or 10 percent of total perquisites, must be specifically identified.
In the SEC’s press release, the San Francisco Regional Office Director, Jina L. Choi, put public companies on notice of the requirement to “implement and maintain effective controls over executive compensation and expenses.” The cases against Polycom and Miller serve as a reminder to carefully craft and implement internal controls, particularly with respect to the reimbursement of expenses.