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An amusement park and two former executives settled SEC charges for failing to disclose the extent to which a documentary film on the park's policies and practices damaged its reputation and business.
According to a Complaint filed in the U.S. District Court of the Southern District of New York, SeaWorld Entertainment, Inc. ("SeaWorld") and its former president and chief executive officer James Atchison did not accurately report the negative effects of the film Blackfish, which was critical of SeaWorld's treatment of killer whales. When SeaWorld ultimately admitted that its declining attendance was, in part, due to the negative publicity generated from the film, the company's stock price dropped substantially. Additionally, the SEC claimed that Mr. Atchison benefited financially from statements that were untrue and contained omissions, and sold SeaWorld stock prior to August 13, 2018 to avoid approximately $730,860 in losses.
In a parallel proceeding, the SEC charged Frederick D. Jacobs, SeaWorld's former vice president of communications, for similar misconduct. The SEC alleged that Mr. Jacobs made misleading statements relating to the impact of the film on SeaWorld's performance.
The SEC announced in its press release that the charges had been settled without admissions of guilt. The charged individuals have agreed to disgorge their gains. In addition, SeaWorld and the two former executives were subject to financial penalties beyond disgorgement.
Commentary / Steven Lofchie
This case raises interesting issues as to how companies should respond to negative publicity. Could the company have disclosed the negative impact of the publicity without adding to that negative impact? Would the company have conducted the reputation study if it had known that the results would need to be publicly disclosed?
Beyond the interesting disclosure question, the company's legal position was made much worse by the fact that its officers sold stock while the stock price was falling for reasons that the company understood better than the investing public.
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