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Univ. of Toledo College of Law

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Thursday, January 13, 2011

Website Company Settles SEC Charges It Failed to Disclose Perks to Former CEO

The SEC settled charges that NIC Inc., a company that manages government websites, and four current or former company executives failed to disclose to investors more than $1.18 million in perks paid to the former CEO over a six-year period.  According to the SEC, the company footed the bill for wide-ranging perks enjoyed by former CEO Jeffrey Fraser, his girlfriend, and his family — including vacations, computers, and day-to-day personal living expenses. NIC failed to disclose that it paid thousands of dollars per month for Fraser to live in a Wyoming ski lodge and commute by private aircraft to his office at NIC's Kansas headquarters. Meanwhile, NIC and its executives falsely represented to investors that Fraser worked virtually for free from 2002 to 2005, and then continued to materially understate the perks that Fraser received in 2006 and 2007. NIC's related party disclosures for 2002 through 2005 also were misleading.

NIC, Fraser, current CEO Harry Herington and former CFO Eric Bur agreed to pay a combined $2.8 million to settle the SEC's charges against them without admitting or denying the allegations. The SEC's litigation continues against NIC's current CFO Stephen Kovzan.

Among the alleged undisclosed perks for Fraser outlined in the SEC's complaints filed in federal court in the District of Kansas:

  • More than $4,000 per month to live in a ski lodge in Wyoming.
  • Costs for Fraser to commute by private aircraft from his home in Wyoming to his office at NIC's Kansas headquarters.
  • Monthly cash payments for purported rent for a Kansas house owned by an entity Fraser set up and controlled.
  • Vacations for Fraser, his girlfriend and his family.
  • Fraser's flight training, hunting, skiing, spa and health club expenses.
  • Computers and electronics for Fraser and his family.
  • A leased Lexus SUV.
  • Other day-to-day living expenses for Fraser such as groceries, liquor, tobacco, nutritional supplements, and clothing.

 NIC agreed to settle the SEC's charges by paying a $500,000 penalty and hiring an independent consultant to recommend, if appropriate, improvements to policies, procedures, controls, and training relating to payment of expenses, handling of whistleblower complaints, and related party transactions. Fraser agreed to pay $1,184,246 in disgorgement, $358,844 in prejudgment interest, and a $500,000 penalty, and consented to an order barring him from serving as an officer or director of a public company. Herington agreed to pay a $200,000 penalty; Bur agreed to pay a $75,000 penalty and agreed to resolve an anticipated administrative proceeding by consenting to an SEC order prohibiting him from appearing or practicing before the SEC as an accountant with a right to reapply after one year.

 

http://lawprofessors.typepad.com/securities/2011/01/website-company-settles-sec-charges-it-failed-to-disclose-perks-to-former-ceo.html

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