Late last week – for the first time in 40 years – the SEC announced a settlement of an internal controls case against an issuer arising from its repurchase of its own shares. The SEC found that Andeavor bought back $250 million of stock without first engaging in an adequate process to ensure that the company did not have material non-public information (MNPI) related to on-again, off-again takeover negotiations with Marathon Petroleum Company. Andeavor, now a subsidiary of Marathon, was ordered to pay a $20 million penalty and to cease and desist from future violations of the Securities Exchange Act’s internal controls provisions.
This case is a wake-up call – particularly in the current environment where stock buybacks are frequent market occurrences – that the SEC will be monitoring such activity, scrutinizing companies’ controls and decision-making when the buyback coincides with market-moving events, and bringing cases with potentially meaningful penalties even where there is no finding that the company violated the federal securities laws’ antifraud provisions by actually trading on the basis of MNPI.
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