The SEC announced an unusual and interesting administrative proceeding today against United Continental Holdings, Inc., the parent company of United Airlines. According to the SEC's order, United reinstated a money-losing nonstop flight between Newark, N.J., and Columbia, S.C., to accommodate David Samson, the then-chairman of the Port Authority of New York and New Jersey. The SEC alleges that Samson privately advocated to United that he wanted the route reinstated because he sought a more direct route between New Jersey and his home in South Carolina.
The flight in question had been previously canceled by Continental Airlines prior to its merger with United due to poor financial performance, and another preliminary financial analysis conducted by United after Samson asked for the route’s return revealed it would likely lose money again. Nonetheless, the SEC alleges, United agreed to to reinstate the flight because its officials "feared Samson’s influence could jeopardize United’s business interests before the Port Authority, including the approval of a hangar project to help the airline at Newark’s airport."
The same day that United approved reinstating the route, the Port Authority’s board approved the lease agreement related to the hangar project. In a statement, Andrew M. Calamari, Director of the SEC’s New York Regional Office, said that United reinstated the route "solely to curry favor with a public official." According to the SEC, the reinstated route lost approximately $945,000 before it was terminated again "roughly around the time of Samson’s resignation from the Port Authority." The Order states that United will pay a civil penalty of $2.4 million to settle the SEC's action against it.
The SEC's action against United charges the company with violating the books and records and internal accounting controls provisions of Section 13 of the Securities Exchange Act of 1934. Among other things, United allegedly:
failed to make and keep records, which, in reasonable detail, accurately and fairly reflected the use of assets in connection with the reinstated route; and
failed to devise and maintain a system of internal accounting controls that was sufficient to prevent approval of the reinstated route.
Separately, in July 2016, Samson pleaded guilty to a felony count of bribery and admitted that he had pressured United to reinstate the flight. The NYT reports that Samson and others called the route “the chairman’s flight” and one person dubbed it “Samson Air.” In connection with this criminal matter brought by the U.S. Attorney’s Office for the District of New Jersey, United entered into a non-prosecution agreement and paid an additional $2.25 million.