Markets Wired

The Securities and Exchange Commission today filed settled fraud charges against Nissan, its former CEO Carlos Ghosn, and its former director Greg Kelly related to false financial disclosures that omitted more than $140 million to be paid to Ghosn in retirement.

According to the SEC’s orders and complaint, beginning in 2004 Nissan’s board delegated to Ghosn the authority to set individual director and executive compensation levels, including his own. From 2009 until his arrest in Tokyo in November 2018, Ghosn, with substantial assistance from Kelly and subordinates at Nissan, engaged in a scheme to conceal more than $90 million of compensation from public disclosure, while also taking steps to increase Ghosn’s retirement allowance by more than $50 million. Each year, Ghosn fixed a total amount of compensation for himself, with a certain amount paid and disclosed and an additional amount that was unpaid and undisclosed. Ghosn and his subordinates, including Kelly, crafted various ways to structure payment of the undisclosed compensation after Ghosn’s retirement, such as entering into secret contracts, backdating letters to grant Ghosn interests in Nissan’s Long Term Incentive Plan, and changing the calculation of Ghosn’s pension allowance to provide more than $50 million in additional benefits. Kelly and Ghosn’s Nissan subordinates misled Nissan’s CFO and Nissan issued a misleading disclosure in connection with the increased pension allowance. The $140 million in undisclosed compensation and retirement benefits was never paid out to Ghosn.

“Investors are entitled to know how, and how much, a company compensates its top executives. Ghosn and Kelly went to great lengths to conceal this information from investors and the market,” said Stephanie Avakian, Co-Director of the SEC’s Division of Enforcement.

“Simply put, Nissan’s disclosures about Ghosn’s compensation were false,” said Steven Peikin, Co-Director of the SEC’s Division of Enforcement.  “Through these disclosures, Nissan advanced Ghosn and Kelly’s deceptions and misled investors, including U.S. investors.”

In an administrative proceeding, the Commission charged Nissan with violating the anti-fraud provisions of the Securities Exchange Act of 1934.  Nissan settled the charges, agreeing to pay a $15 million civil penalty and to cease and desist from committing or causing violations of the anti-fraud provisions. The SEC’s complaint filed in district court charges Ghosn with violating anti-fraud provisions of the securities laws and Kelly with aiding and abetting Ghosn’s and Nissan’s violations. To settle the charges, Ghosn and Kelly agreed to be permanently enjoined from violating or aiding and abetting violations of the anti-fraud provisions. Ghosn also agreed to a $1 million civil penalty and a 10-year officer and director bar. Kelly agreed to a $100,000 penalty, a five-year officer and director bar and a five-year suspension from practicing or appearing before the Commission as an attorney. Nissan, Ghosn, and Kelly settled without admitting or denying the SEC’s allegations and findings.

The SEC investigation was conducted by Brad Ney and Christian Schultz, with assistance from Jamie Wohlert, Richard Haynes and Sandhya Harris. The case was supervised by Tim England and Melissa Hodgman. The SEC would like to thank the Tokyo District Public Prosecutors Office for its assistance in connection with this investigation.