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From Securities Regulation Daily, March 31, 2015

Polycom pays 750K to end probe over ex-CEO’s spending

By Mark S. Nelson, J.D.

Polycom, Inc. agreed to pay $750,000 to settle charges by the SEC that it violated federal securities laws by failing to properly record and disclose the lavish personal spending habits of its one-time CEO. According to the SEC’s order, in which Polycom did not admit or deny the agency’s findings, ex-CEO Andrew M. Miller allegedly ran up a tab of nearly $190,000 that Polycom recorded on its books and in its SEC filings as business costs instead of as Miller’s personal expenses or perks. Miller is now the target of a separate law suit filed earlier today by the SEC in a California federal court (In the Matter of Polycom, Inc., March 31, 2015; SEC v. Miller, March 31, 2015).

Andrew J. Ceresney, Director of the SEC’s Division of Enforcement, emphasized the importance of the stewardship role played by corporate executives in a statement he made referring to the SEC’s court case against Miller that was included in the agency’s press release announcing the deal with Polycom. “We will not hesitate to charge executives with fraud when they allegedly use a public company as a personal expense account and hide it from investors.”

Polycom said in a Form 8-K it filed with the SEC this afternoon that it had been cooperating with the SEC for some time in an effort to end the agency’s administrative case against it. The company also said it had reserved the amount of the civil penalty it will pay in its financials for Q3 2014.

Spending glossed over. Polycom is a collaborative communications services firm chartered in Delaware and headquartered in San Jose, California. Miller was Polycom’s CEO from May 2010 until he resigned in July 2013. Miller also was a Polycom director for nearly the same period he was CEO; he quit his directorship at the same time he left the CEO post.

The SEC’s order detailed Miller’s far flung travels, especially to Indonesia and South Africa, to make advance “site inspections” for the yearly Polycom sales meeting, which the company offered as a reward to its best salespersons. While attending the actual sales meetings, Miller spent lavishly for side-trips, spa treatments, and on other items for both himself and his girlfriend.

According to the SEC, Miller sometimes provided false expense reports to Polycom in order to get repaid for personal items. At other times he enlisted a Polycom vendor to help hide personal spending related to the annual sales meeting. In still other instances, Miller told his aides to use their company purchasing cards (P-cards) to pay for his personal items; Polycom’s policies gave Miller unsupervised discretion to approve these P-card expenses.

The SEC cited tens of thousands of dollars in annual expenses Miller racked up between 2010 and 2013 (peaking in 2012 at $115,683) that the company left out of its compensation disclosures. All told, the SEC said Polycom paid for nearly $190,000 of Miller’s personal expenses without making the needed federal securities disclosures.

Penalties. The SEC alleged that Polycom ran afoul of many federal securities laws. For one, the company’s proxy disclosures fell short of what is required by Exchange Act Section 14(a) and related rules 14a-3 and 14a-9. These failures consisted of not providing data required by Schedule 14A, including compensation disclosures (perks over a certain value) for named executive officers that are spelled out in Item 402 of Regulation S-K.

According to the SEC, Polycom also violated the books, records, and reporting provisions in Exchange Act Sections 13(a) and 13(b) and in Rules 12b-20 and 13a-1. The agency also said Polycom failed to live up to the requirements under these provisions for maintaining internal accounting controls.

The order requires Polycom to pay a $750,000 civil money penalty, and to stop engaging in any current or future violations of the laws and rules cited by the SEC. The order noted that Polycom’s cooperation and prompt remedial acts factored into the agency’s decision to resolve its charges against the company.

The SEC’s Polycom release is No. 34-74613.

The SEC’s case against Miller is No. 15cv01461.

Attorneys: In the court case, David A. Berman for the SEC.

Companies: Polycom, Inc.

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