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Vedder Thinking | Articles SEC Settles Charges Against Operating Company for Failure to Evaluate and Disclose Director's Breach of Independence Standards


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On January 7, 2022, the SEC settled an administrative proceeding brought against a publicly traded operating company that the SEC alleged violated various provisions of and rules under the Securities Exchange Act of 1934 by failing to evaluate and disclose certain business relationships that caused a purportedly independent director to breach applicable independence standards. In May 2019, the company appointed a new independent director to its board, who was selected to serve as the chair of an independent committee tasked with reviewing strategic alternatives, including a possible sale of the company. In September 2019, the new director was named the chief financial officer of a second public company on whose board and compensation committee the first company’s chief executive officer served. This interlocking relationship caused the purportedly independent director to no longer satisfy the NYSE’s director independence standards. However, the director continued to be identified as independent in the company’s shareholder reports, proxy statements and other SEC reports. The SEC alleged that the company failed to maintain disclosure controls and procedures to identify potential director independence issues and that, as a result, the company made material misstatements and omissions in its public filings. The SEC noted, among other things, that the company did not solicit independence questionnaires from its CEO or the new director before preparing its 2020 proxy statement. In settlement of the charges, without admitting or denying the findings set forth in the SEC’s order, the public company agreed to cease and desist from violating applicable provisions of and rules under the Exchange Act and to pay a civil monetary penalty of $325,000.

A copy of the SEC’s cease-and-desist order is available here.


John S. Marten


Nathaniel Segal


Jacob C. Tiedt