U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19208 / April 28, 2005
SEC v. Tyson Foods, Inc. and Donald Tyson, Civil Action No. 05 0841(JDB)
In the Matter of Tyson Foods, Inc. and Donald Tyson,
Exchange Act Rel. No. 34-51625/April 28, 2005
SEC SUES TYSON FOODS AND FORMER CHAIRMAN DON TYSON FOR MISLEADING DISCLOSURE OF PERQUISITES
TYSON FOODS AND DON TYSON SETTLE AND PAY PENALTIES OF $1.5 MILLION AND $700,000
The Securities and Exchange Commission announced today that it has instituted settled enforcement proceedings against Tyson Foods, Inc. and its former Chairman and CEO Donald "Don" Tyson. The SEC charged that in proxy statements filed with the Commission from 1997 to 2003, Tyson Foods made misleading disclosures of perquisites and personal benefits provided to Don Tyson both prior to and after his retirement as senior chairman in October 2001. The SEC also charged the company with failing to maintain adequate internal controls over Don Tyson's personal use of company assets. Don Tyson was separately charged in the administrative proceeding with causing the company's violations and in the complaint with aiding and abetting the company's violations.
Both parties agreed to settle the charges by consenting to the entry of a final judgment in a civil action filed today in the U.S. District Court for the District of Columbia that orders Tyson Foods to pay a $1.5 million penalty and orders Don Tyson to pay a $700,000 penalty. In addition, both parties separately consented to the entry of an SEC Order that orders the company to cease and desist from violating the proxy solicitation and periodic reporting provisions of the federal securities laws and orders Don Tyson to cease and desist from causing such violations. The Order also orders Tyson Foods to cease and desist from violating the internal controls provisions of the securities laws. The company and Don Tyson agreed to the settlements without admitting or denying the findings or allegations in the SEC's Order and complaint.
The SEC's Order finds that while Don Tyson was employed as senior chairman from 1997 to 2001, the company provided approximately $3 million of perquisites and personal benefits to him, his wife, his daughters and three individuals with whom he had close personal relationships. The Order finds that Don Tyson caused disclosure failures with respect to many of these perquisites because his responses to director and officer questionnaires were inadequate. The Order also finds that many of those perquisites had not been raised with or authorized by the company's compensation committee. According to the Order, the $3 million in perquisites included:
- $689,016 in personal expenses for him and two of his friends, including a $20,000 purchase for oriental rugs, an $18,000 purchase for antiques, a $15,000 vacation in London, an $8,000 horse and other substantial purchases of clothing, jewelry, artwork, vacations and theater tickets, which were paid through cash advances from the company's accounts, directly billed to the company or charged to three company credit cards that had been issued in the mid 1990s to Don Tyson and two of his friends;
- $464,132 in personal use by Don Tyson and his family and friends of company-owned homes in the English countryside and in Cabo San Lucas, Mexico, including use of the company-paid chauffeur, cook and housekeeper at the English home and the company's crewed boat in Cabo San Lucas;
- $426,086 of personal use of company-owned aircraft by him and his family and friends, including regular use by his family and friends with and without him on board;
- $203,675 in housekeeping provided at five different homes where Don Tyson and his family and friends lived and/or vacationed;
- $84,000 in lawn maintenance at five different homes where he and his family and friends lived;
- $46,110 to maintain nine automobiles owned and used by Don Tyson and his family and friends;
- $36,554 in telephone services for him and his family and friends;
- $15,000 in Christmas gift certificates that were provided to Don Tyson's family and friends; and
- $1,072,699 to cover Don Tyson's personal income tax liability associated with his receipt of these benefits.
The Order further finds that in its proxy statements filed for 1997 to 2001, the company:
- failed to disclose over $1 million of these perquisites, including $424,121 in housekeeping, lawn maintenance, automobile maintenance and telephone service that were not disclosed due to the company's internal control failures, and an additional $595,656 of perquisites (including gross-up payments for taxes thereon) that were mischaracterized in the company's 1998, 1999 and 2000 proxy statements as "performance-based bonuses," instead of as perquisites, due to a strategy to preserve the company's tax deduction for Don Tyson's compensation;
- used the misleading expression "travel and entertainment costs" to describe perquisites that could not be considered "travel" or "entertainment," such as over $372,539 in personal expenses received by Don Tyson and his friends;
- failed to separately identify by type and amount perquisites that exceeded 25 percent of Don Tyson's total perquisites, such as personal expenses, use of company homes, personal use of company aircraft and/or residential services.
In addition, according the Order, the company's 2002 and 2003 proxy statements used the same misleading terms "travel and entertainment" to describe the continuation of Don Tyson's perquisites pursuant to an October 2001 retirement agreement with the company and failed to disclose fully the nature and scope of those benefits.
The SEC also finds and alleges that due to internal control failures at Tyson Foods throughout most of 1997 to 2003, many of the perquisites described above (totaling approximately $1.5 million) were neither raised with nor authorized by the company's compensation committee or its board of directors. Thus, for example, the board members were unaware until the SEC's investigation that the company was paying for substantial personal expenses incurred by Don Tyson and two of his friends or that Don Tyson's family and friends regularly used the company aircraft while he was not on board. Nor was the board aware until November 2002, as a result of an internal company review of perquisites, of the housekeeping, lawn maintenance, telephone services and automobile maintenance provided to Don Tyson and his family and friends.
Finally, the SEC finds and alleges that Don Tyson, who signed the company's annual reports that incorporated the proxy statements for each fiscal year from 1997 to 2003, caused and aided and abetted the company's disclosure failures. In each year from 1997 to 2003, he signed director and officer questionnaires used to prepare the company's proxy statements that failed to identify or quantify various perquisites. Before signing them, he failed to read the questionnaires or take action to ensure the accuracy of the company's disclosure of his perquisites even though he was the only individual who possessed certain information necessary to accurately complete the questionnaires. In addition, he provided the company an incomplete list of perquisites that he had received for 2002, which omitted the fact that the company had paid for personal expenses for him and two of his friends and had provided housekeeping, lawn maintenance, automobile maintenance and telephone services to him and his family and friends.
As a result of these and other findings, the SEC's Order finds that Tyson Foods violated Sections 13(a), 13(b)(2)(B) and 14(a) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 13a-1, 14a-3 and 14a-9 thereunder, and orders the company to cease and desist from committing any violations and any future violations of these statutory provisions and rules. The SEC's Order also finds that Don Tyson caused the company's violations of Sections 13(a) and 14(a) of the Exchange Act and Rules 13a-1, 14a-3 and 14a-9 thereunder, and orders Don Tyson to cease and desist from causing any violations and any future violations of the foregoing statutory provisions and rules. The SEC's federal court complaint alleges the same violations as the SEC's administrative Order.
Administrative Proceeding Release No. 3-11917
SEC Complaint in this matter