Insurance Company Argo Group’s failure to disclose excessive executive perks costs it $900K

The Securities and Exchange Commission (SEC) has settled charges against Bermuda-based insurance company Argo Group International Holdings, Ltd. for failing to fully disclose perquisites and benefits provided to its former chief executive officer. The firm agrees to pay the SEC $900,000 in fines and penalties.

What constitutes excessive perks?

It’s not so much the size of the prerequisites that flagged Argo for SEC scrutiny. It’s that the firm failed to fully disclose its contributions to its CEO Mark Watson, III’s wellbeing.

According to the SEC, Argo’s proxy statements for 2014 through 2018 disclosed that it had provided a total of approximately $1.2 million in perquisites and personal benefits, chiefly retirement and financial planning benefits, to Watson, then its CEO.  But according to the SEC order, Argo failed to disclose over $5.3 million it had paid on the CEO’s behalf, including in filings for 2018 after a shareholder issued a press release alleging undisclosed CEO perks.

The issue is the lack of oversight and reporting. The additional perks Argo issued to Watson included the personal use of corporate aircraft, helicopter trips, other personal travel, housing costs, transportation for family members, personal services, club memberships, and tickets and transportation to entertainment events.  In total, the firm understated perks and personal benefits paid to its CEO during this time by more than $1 million per year, or by 400%.  

Warner resigned as CEO in November 2019 and from Argo’s Board of Directors a month later.

The SEC took issue with five years of understating benefits

According to Kelly Gibson, director of the SEC’s Philadelphia Regional Office, “Even after being made aware of potential inaccuracies in its disclosures related to executive compensation, Argo did not accurately and adequately inform shareholders about the perks and benefits it provided its highest-ranking executive over a five-year period.”

The SEC’s order charges Argo with violating federal securities law provisions concerning proxy solicitation, reporting, books and records, and internal controls. The Commission issued a cease-and-desist order which requires Argo to pay a $900,000 civil penalty.

Could this lack-of-oversight have been avoided?

Ultimately yes. An Argo shareholder, engaged in a proxy contest, issued press release flagged the issue. The release stated that among other things, the firm’s assets were misused and then that use was understated. In fact, the firm recorded payments to Watson as business expenses and not compensation.

Where was compliance?

Hard to say. It bears repeating that a vigilant, well-run compliance system can spot irregularities and give an attentive compliance team a chance to nip exposures before they get out of hand. Patrina can help. We’ve built our business based on helping organizations keep track of “bad apples,” and stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective systems specifically designed for the financial services and insurance industries. Be smart. Be covered.Let’s talk.