Noteworthy SEC Recordkeeping and Supervision Fines in 2019

The SEC charged Walmart with violating the Foreign Corrupt Practices Act (FCPA). The retail giant has agreed to pay about $282 million to settle bribery charges. Walmart consented to the SEC’s order, finding that it violated the books and records and internal accounting controls provisions of the Securities Exchange Act of 1934.

According to the SEC’s order, Walmart failed to sufficiently investigate or mitigate certain anti-corruption risks, and allowed subsidiaries in Brazil, China, India and Mexico to employ third-party intermediaries who made payments to foreign government officials without reasonable assurances that they complied with the FCPA. The SEC’s order details several instances when Walmart planned to implement proper compliance and training only to put those plans on hold or otherwise allow deficient internal accounting controls to persist, even in the face of red flags and corruption allegations. “Walmart valued international growth and cost-cutting over compliance,” said Charles Cain, chief of the SEC Enforcement Division’s FCPA Unit. “The company could have avoided many of these problems, but instead Walmart repeatedly failed to take red flags seriously and delayed the implementation of appropriate internal accounting controls.”

The SEC fined a marketplace lender $3 million for miscalculating and materially-overstating annualized net returns to retail and other investors. According to the SEC order, from approximately July 2015 until May 2017, the lender in question excluded certain non-performing charged-off loans from its calculation of annualized net returns that it reported to investors. As a result, the firm reported overstated annualized net returns to more than 30,000 investors through individual account pages of its website, and in emails soliciting additional investments. Many investors decided to make additional investments based on these overstated annualized net returns.

Also this year, the SEC and Tesla Chief Executive Officer (CEO) Elon Musk reached an agreement over the CEO’s use of social media. The settlement requires all of Musk’s communication about Tesla’s business via social media, the company’s website, press releases, and investor calls to be preapproved by a securities lawyer. The agreement follows an August 2018 tweet from Musk saying he had obtained the funding necessary to take Tesla private at $420 per share. This violated a previous agreement that Musk was supposed to seek approval before tweeting material information about Tesla. The SEC then went back to court to establish clearer rules for Musk’s public communications. Their settlement required Musk to step down as the chairman of Tesla’s board of directors for three years, pay a $20 million fine, and seek approval prior to publishing all future communications that could be relevant to Tesla shareholders.

The data shows enforcement was a top priority for the SEC in 2019, even with a government shutdown and a change in administration. Companies should expect that the SEC won't tolerate inadequacy or indifference to compliance in the year ahead as well.