On 9 September 2016, the SEC filed a complaint against RPM International Inc. ("RPM") and its General Counsel and Chief Compliance Officer in the United States District Court for the District of Columbia, alleging that the company failed to properly accrue a contingent liability and disclose material facts concerning a prior Department of Justice ("DOJ") investigation. That investigation, which began in early 2011, resulted in a $61 million settlement with the DOJ in August 2013.
The SEC alleges that the General Counsel failed to inform RPM's CEO, CFO, audit committee and independent auditors of updates in the investigation that should have led to an earlier increase in the company's contingent settlement costs (from $11 million to $68.8 million). As a result, according to the SEC, RPM failed to accrue and disclose the liability and restated three quarters of financial results when the liability was ultimately disclosed.
The SEC is seeking monetary penalties, disgorgement and interest against both RPM and the General Counsel personally. This ongoing enforcement action shows that parties cannot simply assume that, once regulatory enforcement matters have been resolved, the parties have wiped themselves clean of those matters. Rather, the SEC has shown that, even after a company has settled with DOJ, the SEC under appropriate circumstances will not hesitate to review skeptically the company's pre-settlement estimates of its anticipated settlement costs.
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