Nissan Agrees to Pay $16.1 Million to Settle SEC’s Claim of Fraudulent CEO Compensation
Despite never paying any of the compensation at issue and without admitting or denying the allegations, the Nissan Motor Co., Ltd. (“Nissan”) agreed to pay the Securities and Exchange Commission (“SEC”) $15 million to settle a claim that it engaged in a $140 million fraudulent compensation scheme. On Monday, the SEC announced the settlement with Nissan, its former Chief Executive Officer Carlos Ghosn (“Ghosn”), and its former director Greg Kelly (“Kelly”). Ghosn and Kelly agreed to pay the SEC $1 million and $100 thousand, respectively.
These payments will settle charges relating to violations of the anti-fraud provisions of the Securities Exchange Act of 1934. In addition to the monetary penalties, Ghosn agreed to a ten-year ban from serving as an officer or director of a public company, and Kelly agreed to a five-year ban of the same, and a five-year suspension from practicing or appearing before the SEC as an attorney.
The SEC began investigating Nissan, Ghosn, and Kelly in January after Japanese prosecutors brought charges against Ghosn and Nissan for wrongdoing relating to the concealment of the $140 million in compensation.
According to the SEC complaint, from 2009 to 2018, Ghosn and his subordinates at Nissan, including Kelly, took part in a scheme to conceal from public disclosure more than $90 million in compensation to be paid to Ghosn and made, or caused to be made, false and misleading statements regarding more than $50 million of additional pension benefits for Ghosn.
The $140 million, which was never paid to Ghosn, was allegedly hidden through contracts entered into by Ghosn and his subordinates which were countersigned by a senior employee who worked directly for Ghosn. Ghosn and his subordinates concealed the money by executing and backdating letters granting Ghosn cash awards under Nissan’s annual Long Term Incentive plan in the amount of the undisclosed compensation, and misleading Nissan’s Chief Financial Officer and other Nissan executives regarding the accounting for the additional pension amounts and creating a false disclosure to support how Nissan accounted for them.
Earlier this month, Nissan released the findings from its internal investigation into the alleged executive misconduct, and earlier this year issued numerous amendments to its past annual securities reports correcting the compensation figures to reflect the amounts that should have been disclosed. Nissan stated that it “provided significant cooperation to the SEC and has promptly implemented remedial acts to prevent recurrence, including transitioning to a new governance structure with three statutory committees (audit, compensation and nomination).” Furthermore, Nissan stated that it “is firmly committed to continuing to further cultivate robust corporate governance.”
The criminal charges against Ghosn are still pending in Japan. Ghosn denies any wrongdoing and has accused Nissan executives of plotting against him. The Tokyo District Court is expected to begin hearings against Ghosn next Spring. Currently, Yasuhiro Yamauchi is acting as Nissan’s Interim CEO after former CEO Hiroto Saikawa was asked by Nissan’s Board to resign as CEO after an internal audit revealed that he inappropriately benefitted from a bonus scheme.
Nissan is expected to announce a new CEO by October. Nissan’s experience over the past year shows how alleged wrongdoing by well-placed executives can spiral into multiple governmental investigations in multiple jurisdictions. While the company has settled with the SEC, Ghosn still faces legal troubles in Japan, while Nissan looks for a new CEO to lead it out of its current morass.
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This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.