Washington, D.C., Sept. 23, 2004 LAWFUEL – Best law news, SEC, attorney, law firm news & legal research – The Securities and Exchange Commission
announced today that it has instituted settled enforcement proceedings
against General Electric Company. The Commission charged that GE failed to
fully describe the substantial benefits it had agreed to provide its former
chairman and CEO John F. “Jack” Welch, Jr., under an “employment and
post-retirement consulting agreement.” GE settled the proceedings by
consenting to the entry of an Order that it cease and desist from violating
the proxy solicitation and periodic reporting provisions of the federal
securities laws.
“Shareholders have a clear interest in knowing how public companies
compensate their top executives,” said Paul R. Berger, Associate Director of
the SEC’s Division of Enforcement. “Compliance with SEC disclosure rules
ensures that shareholders are provided a full and accurate understanding of
senior executives’ compensation arrangements.”
The Commission found that in proxy statements and annual reports filed with
the Commission from 1997-2002, GE failed to fully and accurately describe
the retirement benefits Welch was entitled to receive from the company. In
December 1996, GE and Welch entered into an “employment and post-retirement
consulting agreement” under which Welch agreed to continue as CEO until he
was 65 and serve as a consultant thereafter. In the agreement, Welch
received, as his principal form of compensation, lifetime access to the
perquisites and benefits he had received as GE’s chairman and CEO. GE’s
proxy statements only referred to Welch’s entitlement to “…continued
lifetime access to Company facilities and services comparable to those that
are currently made available to him by the Company,” but did not provide any
other specific information about the “facilities and services” Welch would
receive in retirement.
The agreement itself, which was appended as an exhibit to GE’s 1996 annual
report, stated that Welch was entitled to receive in retirement “continued
access to Company facilities and services comparable to those provided to
him prior to his retirement, including access to Company aircraft, cars,
office, apartments, and financial planning services,” but did not provide
further meaningful and complete disclosure of those “facilities and
services.” Moreover, GE made no other disclosures in its SEC filings that
allowed investors to understand the nature and scope of Welch’s retirement
benefits-specifically, investors could not learn from GE’s previously filed
proxy statements many of the most significant “facilities and services”
Welch had been provided prior to his retirement, including personal use of
GE-owned aircraft, personal use of chauffeured limousines and home security
systems.
The Commission further found that in the first year following Welch’s
retirement in September 2001, Welch received approximately $2.5 million in
benefits under the agreement, which included access to GE aircraft for
unlimited personal use and for business travel; exclusive use of a furnished
New York City apartment that, according to GE, in 2003, had a rental value
of approximately $50,000 a month and a resale value in excess of $11
million; unrestricted access to a chauffeured limousine driven by
professionals trained in security measures; a leased Mercedes Benz; office
space in both New York City and in Connecticut; the services of professional
estate and tax advisors; the services of a personal assistant;
communications systems and networks at Welch’s homes, including television,
fax, phone and computer systems, with technical support; bodyguard security
for various speaking engagements, including a book tour to promote his
autobiography Jack: Straight from the Gut; and installation of a security
system in one of Welch’s homes and continued maintenance of security systems
GE previously installed in three of Welch’s other homes.
The Commission concluded that GE’s inadequate disclosures violated Sections
13(a) and 14(a) of the Securities Exchange Act of 1934 and Rules 13a-1,
14a-3 and 14a-9 thereunder. Without admitting or denying the Commission’s
findings, GE consented to the issuance of the Order, which orders GE to
cease and desist from committing or causing any violations and any future
violations of the foregoing statutory provisions and rules.
