Argo Group to Pay $900,000 to SEC for Failing to Fully Disclose CEO Perks

June 5, 2020 by

Argo Group International Holdings will pay $900,000 to the Securities and Exchange Commission for failing to fully disclose perks and benefits provided to its former chief executive officer.

In proxy statements filed from 2014 through 2018, Argo failed to disclose more $5.3 million it had paid on behalf of its then-CEO Mark E. Watson III, said the SEC order issued on June 4.

The SEC order finds that the perks that Argo paid, but did not disclose, included personal use of corporate aircraft, helicopter trips and other personal travel, housing costs, transportation for family members, personal services, club memberships, and tickets and transportation to entertainment events.

As a result, Argo understated personal benefits paid to the CEO over the period 2014 to 2018 by more than $1 million per year, or 400%, said the SEC.

“We are pleased to have this matter behind us,” said an Argo spokesman in an emailed comment.

The SEC’s investigation into Argo’s executive compensation came to light in October 2019, after a an eight-month campaign waged by activist shareholder Voce Capital Management, which accused Watson of taking excessive corporate perks.

Watson resigned as Argo’s CEO in November 2019. At that time, Kevin J. Rehnberg stepped in as interim CEO, and in February this year, he became CEO.

“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,” said Kelly Gibson, director of the SEC’s Philadelphia Regional Office.

The SEC said Argo’s failure to fully disclose CEO perks continued in its 2018 filings, even after a shareholder (Voce) issued a press release alleging excessive corporate expenses.

“We continue to focus on whether companies are fully disclosing compensation paid to their top executives and have appropriate internal controls in place to ensure that shareholders receive information to which they are entitled,” said Gibson.

Without admitting or denying the SEC’s findings, Argo agreed to the SEC’s cease-and-desist order, which requires Argo to pay a $900,000 civil penalty.

Argo has made peace with its shareholder, Voce Capital Management, by changing its board membership in order to beef up corporate governance.

In January 2020, Argo announced it had entered into a cooperation agreement with Voce Capital Management to make changes to the composition of Argo’s board of directors, by adding three new directors. (Five other directors have retired this year).

“Through ongoing consultation with Voce, as well as other shareholders, we are making meaningful progress in our efforts to refresh, enhance and strengthen Argo’s board of directors,” said Thomas A. Bradley, Argo Group chairman, in a statement issued in February.

During this year’s first quarter, Bermuda-based Argo reported a net loss of $18.8 million or $(0.55) per diluted share, compared to net income of $91.2 million or $2.63 per diluted share for the 2019 first quarter. Its Q1 combined ratio was 103.2% compared to 94.7% for the 2019 first quarter. (A combined ratio above 100% indicates an underwriting loss).

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