On March 7, 2024, the Securities and Exchange Commission (the “SEC”) announced that Skechers U.S.A. Inc. (“Skechers”) agreed to a cease-and-desist order for failing to disclose payments for the benefit of its executives and their immediate family members.
The SEC found that, from 2019 to 2022, Skechers’ annual reports on Form 10-K and proxy statements on Schedule 14A did not comply with the related party transaction disclosure requirements in violation of the Securities Exchange Act of 1934 (the “Exchange Act”). Skechers failed to report several transactions including compensation to a family member of an executive officer and director for serving as an independent consultant, compensation to a sibling-in-law of an executive officer and director as a non-executive employee and outstanding loans to one or more executive officers or directors in excess of $120,000 with respect to personal expenses paid for by Sketchers. The SEC order identifies violation of Sections 13(a) and 14(a) of the Exchange Act and Rules 13a-1 and 14a-3 under the Exchange Act. See the order here.
The SEC has been increasingly focused on registrant compliance (or non-compliance) with the requirement to disclosure related party transactions. In September 2023, the SEC brought an action against a registrant for failing to disclose a director’s role in a stockholder’s private sale of a substantial amount of shares prior to that company’s IPO. Also in September 2023, the SEC brought an action against another company for failing to disclose the employment of a sibling of an executive officer. These cases serve as a good reminder to review disclosure controls and procedures that address related party transactions, revisit D&O questionnaires to ensure that these are soliciting all of the relevant information, and remind directors and officers of the importance of vetting transactions with related parties and reporting transactions with related parties.