Former infoGroup chairman and CEO Vinod C. Gupta “stole millions of dollars from Info shareholders by treating the company like it was his personal ATM,” Robert Khuzami, director of the Securities and Exchange Commission’s division of enforcement, alleged in a statement.
Khuzami’s remarks accompanied agreements by Gupta, along with former chairman of the company’s audit committee Vasant H. Ravel, in which both agreed to pay fines. Gupta, according to an SEC statement, will pay a total of $7,431,100: $4,045,000 in disgorgement, prejudgment interest of $1,145,400 and a penalty of $2,240,700.
Additionally, Gupta agreed to an order barring him from serving as an officer or director of a public company.
In a separate order instituting related cease-and-desist proceedings against infoGroup, the SEC claimed “Info paid Gupta approximately $9.5 million of unauthorized and undisclosed perquisites, which arose out of Gupta’s personal use of company-chartered aircraft and Info’s payment of other personal expenses.”
The SEC further claimed Infogroup (then infoUSA’s) “filings for fiscal years 2003 through 2005 also understated, mischaracterized or omitted certain significant related party transactions involving various entities owned by Gupta.”
An agreement Gupta reached with the SEC placed restrictions on how Gupta would vote based on his ownership of infoGroup common stock. Gupta is currently the company’s largest shareholder, with around 35% of its stock under his control. Gupta has already announced plans to sell his stock, as part of the company’s recently announced acquisition by CCMP Capital.
Ravel, who according to Khuzami “failed to respond appropriately to various red flags concerning Gupta’s expenses”, will cough up $50,000. Additionally, he agreed not to serve as an officer or director of a public figure for five years.
Neither Gupta nor Ravel admitted or denied the SEC’s charges.
The SEC has an additional case pending against two former CFOs, Rajnish K. Das and Stormy L. Dean. The SEC alleges Das and Dean “allowed Gupta to support his lavish lifestyle by rubber-stamping hundreds of his expense reimbursement requests.”
Infogroup consented to a cease-and-desist order which alleged violations of a number of SEC statues, stemming from what it termed infoGroup’s material understating of Gupta’s compensation in the company’s 10-K annual financial forms between 2003 and 2007. The company did not admit or deny any of the findings in the SEC’s order.
The announcement from the SEC makes Gupta’s abrupt departure from the infoGroup board understandable (http://directmag.com/datalist/gupta-infogroup-board-0315/). When the company was sold to CCMP Capital, board members indicated they would step down upon finalization of the sale. But Gupta resigned late last week, just prior to the SEC’s announcement – and ahead of the sale’s completion.
According to the cease-and-desist order infoGroup agreed to, the $9.5 million of “unauthorized and undisclosed perquisites” included “payment for Gupta’s personal use of company-chartered aircraft, his credit card expenses, Gupta’s yacht and houses, leases and purchase of cars for Gupta’s use, 28 golf and country club memberships, and life insurance premiums, among other things.”
The order further states that in the company’s the company’s annual fiscal forms, it failed to disclose “transactions with Gupta and his entities [organizations controlled by Gupta]…[including] (1) substantial payments to a Gupta entity for leasing Gupta’s aircraft, yacht and houses, (2) car lease payments to another Gupta owned entity, and (3) the provision of free office space to Gupta’s entities.”
The order continued “Info also failed to disclose in these filings related party payments to a third-party jet leasing company on behalf of a Gupta owned entity.”
According to the SEC, “Info maintained a system of internal accounting controls that permitted Gupta to obtain a significant amount of unreported compensation. Info also failed to implement internal controls for related party transactions until December 2004 and, thereafter, failed to enforce effectively its related party transactions policy. These internal control lapses allowed Gupta to direct payments to himself directly or his entities and failed to provide reasonable assurances that these transactions were accurately recorded to permit the preparation of Info’s financial statements in conformity with generally accepted accounting practices.”
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