Another stormy summer day in Washington, another high-profile lawsuit from the Securities and Exchange Commission — this one against Citigroup and former senior executives of the company.

Once again, it’s about disclosure, and the agency’s press release puts it succinctly:

“Citigroup repeatedly made misleading statements in earnings calls and public filings about the extent of its holdings of assets backed by subprime mortgages. Between July and mid-October 2007, Citigroup represented that subprime exposure in its investment banking unit was $13 billion or less, when in fact it was more than $50 billion. “

Two executives are also named in the case: Gary Crittenden, the company’s former chief financial officer, and Arthur Tildesley Jr., once head of investor relations and now head of “cross marketing” at Citi. Like Citigroup, both men are settling along with the announcement of the charges.

Getting from $50 billion of exposure to $13 billion is more than a rounding error. Apparently, by the SEC’s account, Citi was neglecting to count “super senior” tranches of collateralized debt obligations — the ostensibly safer slices of pooled bonds or bond-like assets — and “liquidity puts,” effectively a customer’s right to hand failing instruments back to Citi. The agency cites at least four occasions in which Citi lowballed the number in public, even as internal documents recognized the total. At one point, officials even considered information that the company’s disclosures on the issue were misleading, according to the SEC.

Citi, as is usual in these circumstances, isn’t admitting or denying wrongdoing, though it is coughing up $75 million. Crittenden, who is paying $100,000, and Tildesley, who is paying $80,000, also don’t admit wrongdoing.

So far, the company doesn’t seem to have the gumption that General Electric did a couple days ago when it all but admitted foreign-corruption allegations against it; Citi doesn’t appear to have put out a formal statement yet.

Meantime, we see from today’s Wall Street Journal that Citigroup is among the financial firms cracking down on potty-mouthed emails, out of concern for the corporate image. There’s software for that, of course — as the WSJ article mentions, Bloomberg terminals have long declined to let employees send messages containing certain indelicate words.

Too bad financial firms can’t cobble together filters for questionable disclosures. that might do an even better job of protecting their images.

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For many titans of government and industry, a spot on a corporate board or two is just the thing when a long career begins to draw to a close, or to bridge the gap between one endeavor and another. But what to do when you want to retire from the corporate board?

Newmont Mining Corp. (NEM) — a big gold-producing outfit with operations in the U.S., Australia, Peru and elsewhere — seems to have found one answer: Keep the departing official’s counsel by appointing them to head a new advisory board.

In this case, the bigwig is Robert J. Miller, governor of Nevada for the entire 1990s and a member of Newmont’s board for a decade since then. The company announced Miller’s retirement from the board ahead of its April 23 annual meeting, and elsewhere in the company’s proxy it noted that, Miller would be 65 years old as of March 30, and eligible for a $50,000-a-year lifetime pension from the company. (Mandatory retirement age for directors at Newmont is 72.)

At the same time, the company assured investors that Miller was leaving on good terms. “Newmont expects to be able to consult with Governor Miller from time to time and to seek his advice and guidance as needed,” the proxy said.

That might sound like like Miller would to take the occasional call from Newmont officials, as a courtesy after years of amicable involvement in the company (and as an owner of not quite 8,000 shares as of Feb. 22).

In fact, Newmont has invited Miller to head the company’s Nevada Advisory Panel, which, according to the offer letter filed with the company’s quarterly report yesterday, “will provide high-level strategic advice on Nevada political and operational issues.”

That makes the panel sound new, and it seems to be: The company’s previous filings and its website don’t mention the panel that we could find. And Chief Executive Richard T. O’Brien, in his letter to Miller, explains that

“Over the coming months, I will be outlining the composition, operating model and budget for the Advisory Panel, and will look forward to your input and advice on these issues.”

Miller’s pay for a two-year stint running the new board will be $215,000 a year, just a hair less than the $218,000 he made last year as a Newmont director. O’Brien assures Miller in the offer letter: “I anticipate that your services as Chairman would require a time commitment of no more than 275 hours per year.”

That works out to about five hours a week, at just over $781 an hour, on top of Miller’s $50,000-a-year pension. At that rate, we hope Miller’s advice on all matters Nevadan proves to be a bonanza for the company and its shareholders.

Image source: BullionVault via Flickr

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We all hear a lot about health-care inflation. We hear less about inflation in director compensation at health-care companies. Yet it seems to be very real at Hospira (HSP), the specialty pharmaceutical supplier to hospitals, clinics, nursing homes and other institutions.

On June 16, Hospira’s board voted itself a decent pay raise: It increased its annual retainer to $65,000 a year from $50,000 a year, according to an attachment tacked on to the end of the quarterly report it filed this morning. Given that the board met six times last year, according to its most recent proxy filing, that would mean $10,833 a board meeting, up from $8,333.

The company also increased the retainers paid to committee chairmen, in some cases substantially. Chairing the audit committee brings in $25,000 a year, up from $10,000. The compensation-committee chair now brings $20,000 a year, up from $7,500. The two remaining committees — Science, Technology & Quality and Governance & Public Policy — saw their chairmanship retainers rise to $12,500 from $7,500.

The Hospira board did decide to reduce or eliminate two fees: The lead director retainer went to $50,000 from $75,000 (in both cases on top of the regular retainer), and the company eliminated the $1,500 per-meeting fees it had been shelling out (or $1,000 for those attending “other than in person” — presumably meaning by telephone rather than some sort of psychic attendance).

But then the board more than made up for that by adding a new committee-membership retainer, ranging from $17,500 for serving on the audit committee and $10,000 for the compensation committee to $5,000 for the other two. An annual $150,000 award of restricted stock appears to be unchanged. All told, excluding the restricted stock, the total for the company’s nine board members and four committees lands somewhere around $860,000 a year. With restricted stock, it’s closer to $2.2 million.

That said, it’s hard to put an all-in figure on the overall increase, since we only know that meeting attendance last year was 97% — we don’t know how often board attended meetings in person as opposed to telephonically (or astrally, for that matter). The retainer alone, of course, represents a 30% rase, but factoring in six in-person meeting fees under the old system, it falls to closer to 10%.

Even a 10% overall increase would beat the 4.3%, for example, that Hospira expects its overall wages to go up overseas each year on average (as estimated for pension-accounting purposes in the company’s 10-K).

Suffice to say, Hospira’s directors aren’t likely to be hurting any time soon: Under the old pay structure, they made between $218,000 and $240,000. We’ll find out next spring, with the company’s next annual proxy, just how they have fared in the meantime.

Image source: Joe Shlabotnik via Flickr

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It isn’t every day that one of the biggest industrial companies settles foreign bribery charges — and almost acknowledges the allegations in the process. Given that the company didn’t tell investors that the investigation was even underway, that’s not half bad.

Today General Electric (GE) settled allegations by the Securities and Exchange Commission that several subsidiaries had paid the Iraqi government to win contracts under the U.N. Oil for Food Program, before the U.S.-led invasion of that country. The government alleged that two foreign subsidiaries, and two companies that GE later acquired,

“made illegal kickback payments in the form of cash, computer equipment, medical supplies, and services to the Iraqi Health Ministry or the Iraqi Oil Ministry in order to obtain valuable contracts …”

(Also see the SEC complaint (PDF).) GE, in its own press release notes that 14 of the 18 contracts in question went to Amersham plc and Ionics Inc. before GE owned them, while the other four went to GE units in Europe. Then it all but admits the allegations, saying of its own subsidiaries that they

“declined to make cash payments to the Iraqi Ministry of Health, but they acquiesced when their agent offered instead to make in-kind payments of computer equipment, medical supplies, and services to the Iraqi Health Ministry, and then failed to reflect the transactions accurately in their books and records. This conduct did not meet our standards…”

Then the company trots out the usual language about resolving the matter for the good of shareholders, “without admitting or denying the allegations.”

In the end, of course, it’s small potatoes for a company of GE’s size: a $1 million penalty “disgorgement” of $22.4 million of gains from the transactions.  That’s one reason, a GE spokeswoman tells us, that the company never disclosed that government investigations were underway in the first place. Here’s the crux of her emailed statement:

“Based on the amounts in question, the nature of the allegations being made by the SEC Staff, the misconduct having been confined to predecessor companies or foreign subsidiaries, and the absence of any involvement by personnel at the GE level, this matter was not material.”

We we can understand some reluctance to owning up for something acquired companies may have done before the acquisition — though of course the consequences are the same for shareholders — but we’re not quite sure why it matters that the GE subsidiaries involved were overseas: Presumably they’re subject to the same internal corporate oversight and market disclosure rules that U.S. units would be. (Update: Not to suggest that disclosure was necessarily required — just that the subsidiary’s location wouldn’t alter whether it was or not.)

As for the settlement’s size, was GE always certain it would be so small? Moreover, given the nature of bribery scandals — they call into question everything from corporate culture to internal controls — we can’t help but wonder if some kinds of investigations should be disclosed even where the penalties are likely to be minimal in dollar terms.

It turns out the settlement has some other interesting features, as Butler University’s Mike Koehler notes at his FCPA Professor blog. For one thing, it doesn’t include parallel Justice Department charges and settlement — in fact, GE notes that it “has received confirmation” from the agency that it “will take no action relating to these matters.”

Image source: stopnlook via Flickr

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At year’s end, Eli Harari is stepping down from a long stint as chairman and chief executive of SanDisk (SNDK), the company he co-founded and which makes those little cards that store your digital photos. So perhaps it’s no surprise that the company is thanking Harari with more than a pretty speech or two.

Harari will stick around for two years as a consultant to SanDisk — not an uncommon arrangement these days, but he’ll only get $50,000 plus expenses, according to the 8-K the company filed yesterday. That looks like a bargain to our jaded eyes: Not bad for part-time work, of course, but still well below what many companies are paying retired officers.

The rest of his retirement send-off should make up for it. For one thing, he’s getting a $3 million lump sum in return for giving the company “any intellectual property relating to the Registrant’s business that he creates” as a consultant, plus a non-competition and non-solicitation agreement lasting two years beyond his consulting gig.

Moreover, any restricted stock units and options that he holds will continue to vest while he’s a consultant; performance-based awards expire on Dec. 31 this year.

That doesn’t cover all of his equity awards. But never fear: He’ll get those as well. On Dec. 31, 2012 — or sooner, if SanDisk happens to be acquired or taken over — any remaining options and restricted stock units will vest as well. That’s not cheap for SanDisk: The company says it expects to record a charge of $11 million to $13 million in the year ended Jan. 2, 2011, “subject to future market conditions.”

Finally, Harari and his spouse are getting lifetime health benefits from the company — in the form of a lump-sum payment of $476,000 on Dec. 31 this year. SanDisk plans to pay Harari’s taxes on that amount as well, bringing the company’s cost for the benefit to about $950,000.

At the same time, we can’t help but notice that SanDisk doesn’t provide special retirement benefits for top officers — they participate in the 401(k) like everyone else at the company, with the same federal limits on contributions.

All in all, the sendoff should make Harari’s retirement years fairly comfortable, together with the 5 million or so shares he owned as of the last proxy statement. Then again, he did take the company from zero to nearly $10 billion in 22 years. Presumably shareholders think that’s worth more than a handshake.

Image source: Uwe Hermann via Flickr

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It turns out working on the railroad is a lot more varied than we ever imagined as children. This we learn from the “legal proceedings” section of a 10-Q filed Friday afternoon by Union Pacific (UNP), the railroad giant.

That section can be dull and predictable, with tech companies describing endless patent disputes and big industrial companies detailing environmental litigation and contract disputes. But Union Pacific’s latest edition offers most of the elements of an early John Grisham novel.

First came the company’s Freedom of Information Act lawsuit against the Environmental Protection Agency — not something that usually rises to the level of disclosure in a Securities and Exchange Commission filing (though we understand that companies are the biggest users of the act, despite the attention given to news-media FOIA lawsuits).

Union Pacific says it sued the agency on June 23 as part of a dispute dating at least to 2005 over orders from the EPA to clean up lead contamination at some 9,000 residential yards in eastern Omaha, Nebraska.

The company says the contamination stems from two defunct led smelters or refineries, one of which leased land from the railroad six decades ago — and that Union Pacific shouldn’t have to pay for the $50-million cleanup. The EPA disagrees, thanks to liability rules that give it broad authority to recoup costs from land owners, contractors or other companies when the original polluter is defunct or can’t be found. But the railroad isn’t just seeking documents. It’s also

“asking the court to compel the EPA to respond fully to outstanding FOIA requests and to prevent the EPA from destroying records. This lawsuit was based on evidence of the EPA’s intentional destruction of requested documents.”

The railroad doesn’t give details, but it got a temporary injunction from a federal court in Omaha and is seeking a permanent one. Flouting the order could cost the company $37,500 a day plus three times the EPA’s cost to do the cleanup, the railroad said.

It turns out that Union Pacific has another long-running dispute, this one with the Justice Department since at least 2007, over penalties imposed on it after border authorities found drugs smuggled into the U.S. aboard railroad cars.

In 2008, Union Pacific asked a judge to declare the seizures and $61.4 million in penalties “invalid and unenforceable” and to block further penalties, arguing that the rail cars go from the Mexican railroads to the U.S. Customs & Border Protection agency before reaching Union Pacific, and that the U.S. railroad isn’t “a ‘person in charge’ or the ‘owner’ of trains carrying drugs…”

After settlement talks stalled, the Justice Department filed enforcement actions against the railroad in Texas, California and Arizona. They began duking it out in court in earnest. Then, on July 19, Customs & Border Protection

“notified the Railroad of additional penalties totaling approximately $101 million for drug discoveries in California from May 14, 2008, to June 4, 2010. … The Railroad was also informed that it would receive unspecified additional penalties for other drug discoveries. In aggregate, these penalties could become material at a future date.”

This July 13 article from the Associated Press describes what might be one of those unspecified future cases: Three men arrested after police found some 78 twenty-pound bundles of marijuana in an ostensibly empty tanker car in Commerce, California (appropriately enough). Police even detonated a “suspicious object” in the process.

We can’t wait to read more as the drama unfolds. But we’re pretty sure that for these two disputes, it’s going to be a while before Union Pacific shareholders hear that whistle blowing at the end.

Image source: richardmasoner via Flickr

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Now that Dell (company and founder alike) has settled with the Securities and Exchange Commission, no doubt investors and management will forge ahead. But we want to take one moment to look back — not to the sordid accounting gimmicks and misleading disclosure laid out in the SEC’s case, but rather to Dell’s disclosures about the case.

The fact of the investigation had been known for some time before events began snowballing this spring. In its filings, Dell typically dispatched the inquiry with a chunky paragraph calling it a formal investigation into “certain of Dell’s accounting and financial reporting matters,” accompanied by an internal investigation the results of which weren’t explicitly detailed.

Then Dell slipped a cryptic disclosure into an 8-K it filed with the SEC after 5 p.m. on April 1 — the Thursday before the three-day Good Friday market weekend. As subscribers to our FootnotedPro service know (we issued a report that afternoon), it read in relevant part:

“Dell has learned that, in connection with the resulting SEC investigation, several former employees of Dell have been contacted by the SEC staff and been provided with “Wells Notices.” … It is possible that other individuals have received or will receive such notices.”

Wells notices, of course, warn recipients that the SEC plans to sue, unless they can be convinced otherwise.

But then all was quiet on the disclosure front until the company’s quarterly report on June 10, when Dell laid it all out: Not only was the company itself negotiating a settlement of as much as $100 million (exactly what it turned out to be), but founder and CEO Michael Dell was negotiating to settle “alleged violations of the non-scienter (negligence) based fraud provisions of the federal securities laws,” and more. As if to reassure investors, the company added that a settlement “would not include any bar against his service as an officer and director of a public company,” and that the board would want him to stay chairman and CEO.

All well and good, but it prompts a discomfiting question: Just when did the company know that Michael Dell might be in hot water? And was there ever any question about whether he could continue to serve at the company’s helm?

These aren’t simply idle musings. We think it’s fair to say that Michael Dell represents more to the company than a name on the boxes it ships to customers. This is clear from reading about his role in the events detailed in the SEC’s lawsuit, as well as from his much-heralded return to the helm of the company in 2007, at the board’s request. (He had stepped aside in 2004, but remained chairman.) Nor is the $4 million that Michael Dell must pay trivial in the circumstances, as Floyd Norris argues on his blog.

In other words, Michael Dell’s fate in this case seems to have been pretty important to Dell and its shareholders. And yet, even a fairly dedicated reader of Dell’s filings would have had little clue that he was in the SEC’s cross-hairs until the 10-Q was filed. This despite the fact that the company’s own internal investigation was complete in fiscal 2008, and that Dell characterized discussions with the SEC as “ongoing” at least as far back as mid-March.

We’ve called Dell for a comment, but didn’t immediately hear back. We’ll update the post once we do.

All told, Dell’s shares are still down 10% since that cryptic after-hours disclosure on April 1, trailing the Nasdaq by a good 4.5 points. Would investors have been better off knowing more, sooner, even though there was more uncertainty about the outcome? It’s impossible to say for sure, of course, but as the matter at the heart of the SEC’s case suggests, we tend to think more disclosure is better.

Image source: D Sharon Pruitt via Flickr.

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More than two months before announcing that General Motors Co. intended to buy the subprime auto lender, AmeriCredit (ACF) made a slew of changes to employment agreements with its top officers: Extending non-compete clauses for some, sweetening severance for others.

The bare bones of the changes were mentioned in a single paragraph at the end of the 10-Q that AmeriCredit filed on May 7, with the details laid out in a series of exhibits to the filing.

Chief Executive Daniel E. Berce got a new employment agreement that day, replacing one dating to 2005, though the company said no material changes were made to its terms and conditions. It still brought him a minimum salary of $950,000, an unspecified bonus and club-membership reimbursement, plus $5,000 a year for legal and accounting expenses.

AmeriCredit also agreed to sell Berce an insurance policy of unspecified size that it had taken out on his life, and to pay him an annual “bonus” to cover premiums on it each year, plus enough to cover taxes owed on that payment. Separately, the company is on the hook for premiums on another $500,000 insurance policy of Berce’s choosing. Last year’s proxy shows the company reimbursed Berce for $61,784 in life-insurance premiums.

If Berce loses his job in the acquisition by GM — or if he quits in some circumstances — he can count on getting the equivalent of twice his highest salary and bonus from the last seven years, or at least $2.3 million using AmeriCredit’s September proxy filing. The agreement also includes a three-year non-competition clause.

While the company says Berce’s agreement isn’t substantially different from his prior one, two other officers got severance sweeteners: Kyle Birch and Brian Mock, executive vice-presidents for dealer and consumer services, respectively, are now entitled to severance equivalent to three years’ pay if they lose their jobs after a change in control. Using fiscal 2009 pay from the most recent proxy, that would be about $1.3 million apiece.

By contrast, CFO Chris Choate and Steven Bowman, the company’s chief credit and risk officer, simply had their non-compete clauses extended to three years.

Does all of this amount to coincidence, or a clue to the deal that was then in the works? With 20-20 hindsight, it sure looks like someone was tying up loose ends.

Image source: Aylie via Flickr

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We don’t usually write about microcaps but we like to watch how jargon, buzzwords and slang gradually infiltrate the filings. So we made an exception for DNA Brands, Inc. (FPRD), formerly known as Famous Products, Inc.

The company’s recent 8-K caught our attention because it used the phrase “brand evangelists.” It’s a phrase you can find examples of online, as far back as 2007, and back in the bad old days, when the cult of Apple (AAPL) was a smidgen smaller, Guy Kawasaki served as its all-but-official evangelist (though we don’t think he put “brand” in front of the title). But until now, no company seems to have used it in an SEC filing.

DNA Brands makes and sells three carbonated blends of DNA Energy Drinks, as well as a meat snack line featuring two flavors of beef jerky and three flavors of beef sticks. The company distributes its products (or soon will) in about 15 states. Basically, it’s trying to compete against big companies, but on a shoestring budget.

And that’s where the “brand evangelists” come in. These devoted disciples spread the good word about the miraculous properties of DNA’s energy drink. The filing explains:

“[Sample programs]… created our core grass roots loyal followers who are now our first line of brand evangelists as they move to the action sports shops and see our branded DNA® coolers. We then extend our expansion to the next geographic target. Together with our action sports individual athlete and team endorsements, our brand evangelists in hand and our developing interactive web component, our marketing program is also geared to create a viral effect both within and outside our target demographic….”

DNA Brands is pursuing about 90 million possible converts —  young, hip consumers, especially men between 18 and 39. The company explained:

“This group tends to be on the cutting edge of style and have a profound influence on cultural trends and fashion. They are individualistic and tend to avoid corporate culture in favor of personal individual expression. They are extreme, risk takers, can spot the next ‘next’ in the culture and are quick to try it. They quickly adopt it and spread the word if they like it and are as quick to toss it aside if it compromises their integrity and individuality.”

Company van drivers give away free samples through DNA’s “Cans in Hands” promotion. It also sponsors a super cross team and up-and-coming athletes (who are less famous, but also less expensive to hire). These strategies, the company says, beat pouring millions of dollars into the “top down advertising” favored by highly capitalized brands with seemingly unlimited resources.

The company is optimistic, noting that Anheuser Busch’s Florida distributors may buy its drink (now that Monster Energy Drink defected to Coca Cola). It’s also getting shelf space in stores like Walgreens, CVS, and 7-Eleven.  It inked deals with some major league sports teams, and it believes that the military will start selling its meat snacks in September.

Of course, this could all be so much of fizz in the end — it tastes more like optimistic boosterism than concrete results so far. But soon enough, we’ll know how well “brand evangelism” spreads as a catchphrase in the filings, even if the sales results take a little longer to quantify.

Image source: Chascow via Flickr

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While reading the proxy that PSS World Medical, Inc. (PSSI) filed July 14, we discovered an interesting transition that got little press when it occurred, other than by a couple of publications in Florida.

The event itself seemed surprising, in that on January 27, 2010, Jacksonville, Florida-based PSS World Medical released FY 2010 3rd quarter results that seemed to suggest things were going well. At the time, Chairman/CEO David A. Smith, Chairman and Chief Executive Officer, commented, “Our results are ahead of plan and demonstrate solid momentum in our strategic initiatives….”

Less than a week later, the company filed an 8-K to announce that Smith was out. According to that filing, PSS World and Smith “mutually agreed” that his employment would end that day – February 2, 2010. He also resigned from the board of directors. The board appointed Gary Corless (previously the EVP/COO) as the new CEO.

Smith’s successor Chairman of the Board struck a conciliatory tone, thanking Smith for his “outstanding leadership during his lengthy career” and continuing, “His contributions have been instrumental in developing the Company into the industry leader it is today.”

PSS World Medical gave Smith a nice severance/departure package to ease his transition into the next chapter of life. Although the 8-K contained a summary of its terms, the actual Separation Agreement wasn’t filed until May 26, 2010.

In exchange for Smith honoring “certain restrictive covenants” for 24 months and signing a general release, the company paid him a severance payment of $2,718,000 million; two years’ worth of ongoing group health benefits for Smith and his dependents; and an additional payment of $680,000 (called a “Restrictive Covenant Extension Payment”).

The company also agreed to pay him $4,269 for unpaid base salary, $2,500 to reimburse him for business expenses, legal fees of up to $25,000 to negotiate the agreement, and outplacement and counseling expenses of up to $60,000. It also gave him a three-month window during which he could exercise his vested stock options.

Abrupt departures aren’t usually a good sign, and no explanation was given for this one. But Smith certainly didn’t leave empty-handed, and the extra millions should give him time to figure out what – if anything – he wants to do next.

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