News

Settlement of Enforcement Action Against Tyson Foods and Don Tyson

News Brief
April 28, 2005

By: Cydney Posner

Another settlement from the SEC of a compensation-related enforcement action, this one related to Tyson Foods and its former senior chairman and CEO, Don Tyson.

See: Litigation and Complaint.

The enforcement proceedings relate to misleading disclosures in proxy statements from 1997 to 2003 of perquisites and personal benefits provided to Mr. Tyson 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 Mr. Tyson's personal use of company assets. Don Tyson was separately charged with causing and aiding and abetting the company's disclosure violations.

The SEC found that, while 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 close friends. Tyson Foods’ board greatly valued his leadership and had a long history of paying a substantial portion of his annual compensation in the form of perquisites and personal benefits. When the company was smaller, it would pay for certain personal expenses and send a company employee to his home to mow his lawn or fill his car with gas. As the company grew, the practice metastasized as it gradually provided more perks and began to include his wife, his daughters and close friends.

For your entertainment, these perks included, among others:

  • $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 Mr. Tyson and two of his friends;
  • $464,132 in personal use by Mr. 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 Mr. 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 him and his family and friends;
  • $1,072,699 to cover Mr. Tyson's personal income tax liability associated with his receipt of these benefits.
However, the SEC found that 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 (including the fact that in-house counsel was unaware that the company was even providing these perks), and an additional $595,656 of perquisites (including gross-up payments for taxes) that were mischaracterized as "performance-based bonuses," instead of as perquisites, in a strategic attempt to preserve the company's tax deduction under section 162(m). In addition, the company also mischaracterized personal expenses, such as use of company homes and residential services, as "travel and entertainment costs," without fully disclosing the nature and scope of the benefits. In addition, although the company disclosed that he would receive as retirement benefits travel and entertainment costs and tax gross-ups "consistent with past practices," investors could not learn from the company's previously-filed proxy statements the total costs of the benefits Mr. Tyson would receive in retirement due to the omission of a number of perquisites from the prior proxy statements. The proxy statements also failed to separately identify by type and amount perks that exceeded 25% of Mr. Tyson's total perks. .

The SEC also found internal control failures because perks with a value of approximately $1.5 million had not been raised with or authorized by the company's compensation committee. For example, the SEC charges that, prior to the commencement of the SEC's investigation, board members were unaware that the company was paying for substantial personal expenses incurred by Mr. Tyson and two of his friends or that his 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 Mr. Tyson and his family and friends.

The SEC found that Mr. 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. First, the SEC contended that he caused disclosure failures because his responses to D&O questionnaires were inadequate. Before signing them questionnaires, he failed to read them or take action to ensure the accuracy of the company's disclosure of his perquisites even though, the SEC contends, 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 for 2002.

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