Fintech Company Charged For Stock Option Offering Deficiencies, Failed To Provide Required Financial Information To Employee Shareholders
March 12, 2018
File No. 3-18398
March 12, 2018 – The Securities and Exchange Commission announced today that a San Francisco-based financial technology company has agreed to settle charges that it unlawfully offered securities to its employees and failed to provide them with timely financial statements and risk disclosures.
According to the SEC’s Order instituting cease-and-desist proceedings, Credit Karma, Inc. issued stock options worth millions of dollars to its employees from October 1, 2014, through September 30, 2015. Credit Karma did not register its offer of stock options. It sought instead to rely on Securities Act Rule 701, which allows privately-held companies to compensate their employees with securities without incurring the obligations of public registration and reporting as long as, once the company issues $5 million worth of securities, it provides essential information about the investment to employees. Here, Credit Karma issued almost $14 million in stock options to employees over a one-year period. Even though financial statements and risk disclosures were available and confidentially provided to potential institutional investors, Credit Karma failed to provide this information to its own employees.
Without admitting or denying the allegations in the order, Credit Karma agreed to pay a $160,000 penalty and consented to the SEC’s order finding that the company violated Section 5 of the Securities Act of 1933 by failing to comply with the registration requirements or to meet the requirements of an exemption to the registration requirements when it offered securities to its employees.
The SEC’s investigation was conducted by Kashya Shei and Carlos Vasquez of the SEC’s San Francisco Regional Office. The case was supervised by Jeremy Pendrey.