After fraudulently concealing from investors more than $140 million of compensation and retirement benefits, Nissan, Carlos Ghosn and Greg Kelly have negotiated cut a bargain plea deal with the U.S. Securities and Exchange Commission. *Nissan, Ghosn, and Kelly settled without admitting or denying the SEC’s allegations and findings. In an administrative proceeding, the Commission charged Nissan with violating the anti-fraud provisions of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5. (Nissan CEO Hiroto Saikawa Forced Out Over Ghosn Matter)
Nissan settled the charges, agreeing to pay a $15 million civil penalty and to cease and desist from committing or causing violations of the anti-fraud provisions. To settle the charges, Ghosn and Kelly agreed to be permanently enjoined from violating or aiding and abetting violations of the anti-fraud provisions. Ghosn also agreed to a $1 million civil penalty and a 10-year officer and director bar. Kelly agreed to a $100,000 penalty, a five-year officer and director bar and a five-year suspension from practicing or appearing before the Commission as an attorney. Critics no doubt will say the settlement is laughable given the amount of money involved.
The SEC’s complaint, filed in the United States District Court, Southern District of New York, charges Ghosn with violating the same anti-fraud provisions and Kelly with aiding and abetting Ghosn’s and Nissan’s violations. To settle the charges, Ghosn and Kelly agreed to be permanently enjoined from violating or aiding and abetting violations of the anti-fraud provisions. Ghosn also agreed to a $1 million civil penalty and a 10-year officer and director bar. Kelly agreed to a $100,000 penalty, a five-year officer and director bar and a five-year suspension from practicing or appearing before the Commission as an attorney.
According to the SEC’s orders and complaint, beginning in 2004 Nissan’s Board delegated to Ghosn the authority to set individual director and executive compensation levels, including his own. From 2009 until his arrest in Tokyo in November 2018, Ghosn, with substantial assistance from Kelly and subordinates at Nissan, engaged in a scheme to conceal more than $90 million of compensation from public disclosure, while also taking steps to increase Ghosn’s retirement allowance by more than $50 million.
Each year, Ghosn fixed a total amount of compensation for himself, with a certain amount paid and disclosed and an additional amount that was unpaid and undisclosed. Ghosn and his subordinates, including Kelly, crafted various ways to structure payment of the undisclosed compensation after Ghosn’s retirement, such as entering into secret contracts, backdating letters to grant Ghosn interests in Nissan’s Long Term Incentive Plan, and changing the calculation of Ghosn’s pension allowance to provide more than $50 million in additional benefits. Kelly and Ghosn’s Nissan subordinates misled Nissan’s CFO, and Nissan issued a misleading disclosure in connection with the increased pension allowance. The $140 million in undisclosed compensation and retirement benefits was never paid out to Ghosn.
* Nissan is a Japanese automobile manufacturer with securities that trade on the Tokyo Stock Exchange. Nissan’s sponsored American Depositary Receipts (“ADRs”) trade in the United States in the over-the-counter (“OTC”) market and through brokerage firms. Nissan’s ADRs are exempt from registration in the United States, in part, because Nissan publishes English versions of its Japanese securities filings for review by investors trading in the United States.