In a unique enforcement action, the Securities and Exchange Commission Dec. 2 announced that United Continental Holdings Inc.—United Airlines’ parent company—has agreed to pay $2.4 million to settle claims that the airline reinstated a money-losing flight to mollify the then-chairman of the Port Authority of New York and New Jersey.
According to the SEC’s order, in 2011, United reinstated a flight route from Newark, N.J. to Columbia, S.C., at the behest of David Samson, then the chairman of the Board of Commissioners of the Port Authority of New York and New Jersey. The flight had been discontinued by Continental prior to its merger with United due to poor financial performance. Samson, who in his role as Port Authority chairman had authority over matters directly affecting United’s interests, sought a direct route to his home in South Carolina.
Fearing negative implications for the company’s business interests, United’s then-CEO approved the reinstatement of the route. Perhaps not coincidentally, the same day the flight was reinstated, the Port Authority’s board approved a lease agreement related to United’s hangar at Newark airport.
As laid out in the SEC’s order,
United violated Section 13(b)(2)(B) of the Exchange Act because, despite the significant potential corruption risks surrounding its dealings with public officials, United failed to design and maintain a system of internal accounting controls that was sufficient to prevent its officers from approving the use of United’s assets in connection with the South Carolina Route in violation of United’s Policies, which prohibited the use of assets for corrupt purposes. The ethics code in effect in 2011 provided that employees wishing to act in ways prohibited by the ethics code could request approval for an exception. In this instance, no exception was requested or granted. Indeed, the CEO was able to approve the South Carolina Route outside United’s normal process because United lacked adequate controls to reasonably ensure that prior to authorization of the Transaction an exception was obtained from the Director of Ethics and Compliance or United’s Board of Directors as required by United’s Policies. The failure to seek such prior authorization of the Transaction—which required a written submission and any approval to be in writing—also caused United to violate Section 13(b)(2)(A) of the Exchange Act because its books and records did not, in reasonable detail, accurately or fairly reflect the South Carolina Route Transaction.
In July, Samson pleaded guilty to bribery in a criminal action brought by the U.S. Attorney’s Office in New Jersey related to the reinstatement of the flight. United Continental, also in July, entered a non-prosecution agreement with the U.S. Attorney’s Office in New Jersey over the matter.
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