SEC Files Action Against Company and its General Counsel for Loss Contingency Accrual and Disclosure Failures – What to Know

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SEC’s Factual Allegations -

On September 9, 2016, the Securities and Exchange Commission (“SEC”) filed a complaint against RPM International Inc. (“RPM”) and its General Counsel and Chief Compliance Officer, alleging the company failed to properly accrue for and disclose material facts about a contingent loss involving a Department of Justice (“DOJ”) investigation, which ultimately resulted in a $61 million False Claims Act (“FCA”) settlement with the government. See SEC v. RPM Int’l Inc., U.S.D.C. District of Columbia, No. 1:16-cv-01803. The SEC alleges that RPM’s General Counsel failed to disclose to RPM’s CEO, CFO, audit committee, and independent auditor key updates about the investigation and the qui tam suit from which it arose. The complaint alleges that as a result, the company failed to timely accrue for and disclose the potential liability.

In 2010, the DOJ began investigating a subsidiary of RPM after a former employee filed a qui tam complaint alleging that the subsidiary had overcharged the federal government on certain contracts in violation of the FCA. RPM became aware of the investigation in March 2011 upon receiving a subpoena. While the General Counsel did discuss the existence of the subpoena with company officers and directors and the company’s independent auditor in April 2011, the SEC alleges that he failed thereafter to disclose key details about the investigation and the status of settlement talks, including the fact that the DOJ had shared the partially unsealed qui tam complaint.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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