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The SEC's recent action against Thor Industries can be
found here: Litigation Release / Complaint.
In pertinent part, pursuant to the allegations in the
litigation release and in the Complaint,
Thor and its subsidiaries lacked reporting, recording keeping and internal
controls, including the failure to segregate duties, which allegedly permitted
an officer to perpetuate fraud. At the time, Thor was also subject to a
prior 1999 cease and desist order that prohibited violations of the book,
records and internal control requirement. In other words, in 1999 Thor
represented that it would fix the internal control deficiencies and that they
would not occur again. The alleged improprieties in the current situation
appear to have been material to Thor but qualitatively and quantitatively.
As stated in the litigation release, to settle the
current action "the SEC and Thor agreed as follows: "Without admitting or
denying the allegations in the complaint, Thor has consented to the entry of a
final judgment: (1) requiring it to comply with the 1999 cease-and-desist
Order; (2) permanently enjoining it from violating Sections 13(a), 13(b)(2)(A),
and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13
thereunder; (3) ordering it to pay a $1 million penalty pursuant to Exchange
Act Section 21(d)(3) for violating the 1999 Order; and (4) ordering it to hire
an independent consultant to review and evaluate certain of its internal
controls and record-keeping policies and procedures."
It needs to be acknowledged that the allegations against
Thor are just that, allegations. Nevertheless, the allegations in the
SEC's Complaint, as far as they go, are fairly detailed. It appears that
Thor and its various subsidiaries were significantly run as separate
operations. The subsidiaries lacked sufficient internal controls, as did
Thor itself and to oversee the subsidiaries.
Thor's stock is traded on the New York Stock Exchange.
As I view the action and the remedy, Thor paid a fairly
hefty penalty to have the SEC agree for a second time that the company needs to
get its internal controls and record keeping in order, which appears to be a
pretty good outcome for Thor. Not much different than after the 1999
Here are at least some of the unresolved issues.
But I am sure that many of my governance, risk, internal audit, and compliance
friends could come up with additional issues and suggested remedies. The
SEC does not discuss the actions or inactions of many of the people who were
involved or arguably should have been involved in or aware of the circumstances
that occurred. I am not saying that these other people were culpable or
liable, or even that the SEC should have brought an action against them-just
that the SEC should have discussed the facts of what allegedly occurred in
greater detail, and then at least adjusted the non-monetary remedy
accordingly. Thor is required to have an internal audit function.
Its financials are audited annually, and reviewed quarterly by its outside
auditor. Thor's board assesses and manages risks, pursuant to Thor's
website. And, of course, Thor has executive officers, a board, and an
audit committee. Thor's website contains the usual corporate, governance,
ethics policy, and board information and representations. I just find the
current remedies to be significantly deficient and lacking in detail. One
clearly needs to ask how all of this managed to happen, and who did what and
did not do what, and then design and implement actual changes from top to
bottom seriously and reasonably calculated to prevent a third reoccurrence and
restore faith. Where were internal audit and the outside auditor?
Where were the board and the audit committee? Where were the relevant
executive officers, the CEO? Was there any anonymous reporting?
Wasn't a concerted corrective effort to made after the 1999 Order? Is
there a compliance and ethics officer or function? As stated, the SEC's
allegations are just that, allegations, and I am sure that Thor would have
presented credible and perhaps even winning defense arguments if the case had
proceeded onward; however, in settlement a case like this presents an
opportunity for the company and for the SEC to remedy the current situation and
to provide guidance to people at other listed companies.
Tate's Blog: Law - Governance - Risk - Business for more articles about
corporate governance, risk management, and other corporate law topics.
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