A periodic bulletin keeping small businesses informed about current developments in securities law and related matters

Formal Securities and Exchange Commission (SEC) enforcement action for a failure to comply with the line-item disclosure requirements of Regulation S-K is rare. A recent case, however, proves that it can happen. Last month the SEC brought an enforcement action against NIC, Inc., a company that manages government websites, and four of its executives for failing to disclose more than $1.18 million in perquisites paid to former CEO Jeffrey Fraser over a six-year period. The complaint alleges that NIC’s proxy statements, annual repots and registration statements failed to disclose Mr. Fraser’s perquisites during 2002 through 2005 and materially understated them during 2006 and 2007. Such perquisites included, among others, $4,000 per month to live in a Wyoming ski lodge, “rent” payments for a house owned by an entity owned and controlled by Mr. Fraser, vacations for Mr. Fraser and his girlfriend and family, spa, skiing, health club and other expenses, a leased Lexus SUV and day-to-day living expenses such as groceries and clothing. The complaint also alleges that NIC’s related party transactions were misleading for failing to disclose its payment of $1 million with respect to the operation of planes for Mr. Fraser, as well as numerous control failures at NIC that allowed Mr. Fraser to be inappropriately reimbursed for personal expenditures and that resulted in the disclosure failures alleged in the complaint.