The former CEO of a Texas-based oilfield services company will pay a $195,046 penalty to settle charges levied by the Securities and Exchange Commission (SEC) related to the company’s failure to disclose some of his executive perks and stock pledges to investors.
ProPetro Holding Corp. and its founder and former CEO Dale Redman were charged with failing to report the company paid $380,594 worth of Redman’s personal and travel expenses that were not related to his duties as CEO, as well as $47,591 in additional, authorized perks.
Redman also pledged his ProPetro stock as collateral in two private real estate deals, in 2017 and 2018, in violation of the company’s shareholder agreement and insider trading policy, the SEC said.
“The federal securities laws are crystal clear: Issuers must accurately disclose and record executive compensation and stock ownership. ProPetro failed in both respects,” said David Peavler, director of the SEC’s Fort Worth Regional Office, in a press release Monday.
Without admitting or denying the SEC’s findings, ProPetro and Redman agreed to cease and desist from further violations. Only Redman was fined.
ProPetro was informed by the SEC it would not be ordered to pay a penalty based on its “significant cooperation with the agency’s investigation” and “extensive remedial efforts, which included hiring an entirely new management team with significant public company experience; hiring additional finance department personnel; installing several new directors; and developing new controls, policies, and procedures concerning perks.”
The SEC noted, though, that any finding that the company “knowingly provided materially false or misleading information or materials to the Commission” might result in a reopening of the matter to seek a fine.
In its order, the SEC said Redman owned a 50 percent share in an aviation company that owned a Learjet. ProPetro did not have a formal policy separating use of the jet for company business and for Redman’s personal travel expenses. As a result, the company paid approximately $252,896 to cover the cost of personal travel expenses for Redman in 2017 and 2018 that it did not disclose as an executive perk.
Redman also allegedly charged $127,698 in undocumented and/or personal expenses on his corporate credit card in 2017 and 2018 that went undisclosed. The company also paid $47,591 in 2017 and 2018 for charitable donations and event tickets for Redman that were legitimate corporate expenses that were not recorded and disclosed properly due to poor internal accounting controls, according to the SEC.
Regarding his real estate deals, Redman allegedly did not notify the company of the 2017 stock pledge in violation of a shareholder’s agreement he signed. In the 2018 deal, a bank conducted due diligence by contacting ProPetro’s general counsel regarding Redman using the company stock as collateral.
Redman entered a “negative pledge” with the bank, agreeing not to sell the shares as long as he owed the bank money on the loan. The board eventually agreed to allow the negative pledge, but Redman never disclosed the first loan to the board. Neither stock pledge was disclosed in SEC filings until 2020, the agency stated.
For its part, ProPetro issued a press release Monday saying it fully cooperated with the SEC’s investigation into the executive compensation disclosure failures.
“The SEC’s administrative order recognizes not only the significant value of the company’s cooperation but also the considerable remedial actions taken by the company to strengthen its internal policies, governance, and internal control over financial reporting and to embed those improvements into the company’s culture,” said ProPetro Executive Chairman Phillip Gobe. “All material weaknesses previously identified have been fully remediated, and ProPetro is a stronger company today as a result of the actions we have taken to enhance our culture.”