SEC Charges Andeavor for Inadequate Controls Around Authorization of Stock Buyback Plan

The Securities and Exchange Commission today announced settled charges against Andeavor LLC for controls violations relating to a stock buyback plan it implemented while it was in discussions to be acquired by Marathon Petroleum Corp. in 2018. Andeavor agreed to pay a $20 million penalty to settle the charges. According to the SEC’s order, Andeavor and Marathon held months of confidential discussions in 2017 about Marathon potentially acquiring Andeavor, which at the time was an energy company headquartered in San Antonio. The order finds that, in October 2017, Andeavor’s then-Chairman and CEO and Marathon’s Chairman and CEO agreed to suspend the discussions, and then agreed in late January 2018 to resume talks. The order finds that two days before the date set for resuming the discussions, Andeavor’s CEO directed the company’s CFO to initiate a $250 million stock buyback. According to the order, the Board of Directors’ authorization for the buyback was subject to a company policy prohibiting repurchases while Andeavor was in possession of material non-public information, yet Andeavor failed to maintain internal accounting controls that provided reasonable assurance that the buyback complied with Andeavor’s policy. The order finds that Andeavor used an abbreviated and informal process to evaluate whether the requirements for the buyback were satisfied, including that the company was not in possession of material non-public information. The order finds more specifically that the process for evaluating the materiality of the acquisition negotiations did not include discussing, with the CEO, the likelihood of a deal between Andeavor and Marathon. As described in the order, in February and March 2018, Andeavor repurchased 2.6 million shares of its stock from investors at an average price of $97 per share. Approximately one month after completing the buyback, the order finds, Andeavor publicly announced that it would be acquired by Marathon in a deal valuing Andeavor at over $150 per share. “Companies must have reasonable controls in place to ensure buybacks are made in accordance with management’s authorization,” said Stephanie Avakian, Director of the SEC’s Division of Enforcement. “As described in the SEC’s order, Andeavor’s Board of Directors set clear lines around when the company could buy back its shares, but Andeavor failed to have a process that was reasonably designed to ensure that it stayed within those lines.” “Andeavor failed to take reasonable steps to ensure that personnel evaluating whether the company had material non-public information learned about significant corporate developments,” said Melissa Hodgman, Associate Director. “While buybacks can be an important part of a company’s capital allocation plan, this case makes clear the importance of effective controls when a company is contemplating transactions with its shareholders.” The SEC’s order finds that Andeavor violated the internal controls provisions of Section 13(b)(2)(B) of the Securities Exchange Act of 1934. Without admitting the findings in the order, Andeavor agreed to cease-and-desist from further violations of that provision, and to pay a civil penalty of $20 million. The SEC’s investigation was conducted by Joseph Zambuto, Jr. and supervised by Rami Sibay.

The Securities and Exchange Commission today announced settled charges against Andeavor LLC for controls violations relating to a stock buyback plan it implemented while it was in discussions to be acquired by Marathon Petroleum Corp. in 2018. Andeavor agreed to pay a $20 million penalty to settle the charges. According to the SEC’s order, Andeavor and Marathon held months of confidential discussions in 2017 about Marathon potentially acquiring Andeavor, which at the time was an energy company headquartered in San Antonio. The order finds that, in October 2017, Andeavor’s then-Chairman and CEO and Marathon’s Chairman and CEO agreed to suspend the discussions, and then agreed in late January 2018 to resume talks. The order finds that two days before the date set for resuming the discussions, Andeavor’s CEO directed the company’s CFO to initiate a $250 million stock buyback. According to the order, the Board of Directors’ authorization for the buyback was subject to a company policy prohibiting repurchases while Andeavor was in possession of material non-public information, yet Andeavor failed to maintain internal accounting controls that provided reasonable assurance that the buyback complied with Andeavor’s policy. The order finds that Andeavor used an abbreviated and informal process to evaluate whether the requirements for the buyback were satisfied, including that the company was not in possession of material non-public information. The order finds more specifically that the process for evaluating the materiality of the acquisition negotiations did not include discussing, with the CEO, the likelihood of a deal between Andeavor and Marathon. As described in the order, in February and March 2018, Andeavor repurchased 2.6 million shares of its stock from investors at an average price of $97 per share. Approximately one month after completing the buyback, the order finds, Andeavor publicly announced that it would be acquired by Marathon in a deal valuing Andeavor at over $150 per share. “Companies must have reasonable controls in place to ensure buybacks are made in accordance with management’s authorization,” said Stephanie Avakian, Director of the SEC’s Division of Enforcement. “As described in the SEC’s order, Andeavor’s Board of Directors set clear lines around when the company could buy back its shares, but Andeavor failed to have a process that was reasonably designed to ensure that it stayed within those lines.” “Andeavor failed to take reasonable steps to ensure that personnel evaluating whether the company had material non-public information learned about significant corporate developments,” said Melissa Hodgman, Associate Director. “While buybacks can be an important part of a company’s capital allocation plan, this case makes clear the importance of effective controls when a company is contemplating transactions with its shareholders.” The SEC’s order finds that Andeavor violated the internal controls provisions of Section 13(b)(2)(B) of the Securities Exchange Act of 1934. Without admitting the findings in the order, Andeavor agreed to cease-and-desist from further violations of that provision, and to pay a civil penalty of $20 million. The SEC’s investigation was conducted by Joseph Zambuto, Jr. and supervised by Rami Sibay.