A Cautionary Tale for Audit Committee Chairs?

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The SEC announced on March 15, 2010 that it had charged the former CEO, CFOs, and Audit Committee Chair of infoGroup Inc. with securities fraud and other securities law violations in connection with almost $9.5 million of undisclosed perquisites paid to the CEO and $9.3 million of undisclosed related party transactions with entities the CEO controlled. The CEO and the Audit Committee Chair agreed to settle the matter, without admitting or denying the allegations. The Audit Committee Chair, Vasant Raval, consented to an injunction against future violations, agreed to pay a $50,000 civil money penalty, and agreed to be barred from serving as an officer or director of a public company for five years.

Bad facts, it is frequently said, make bad law. It is difficult to know whether this case represents a measured response to a set of egregious facts or whether it sets a new standard to which audit committee chairs should be held. At the very least, it provides audit committee chairs with a roadmap of what not to do when confronted with allegations of improper conduct.

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