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From Securities Regulation Daily, September 18, 2018

SEC harpoons SeaWorld, former CEO over Blackfish disclosures

By John M. Jascob, J.D., LL.M.

SeaWorld Entertainment Inc. and its former CEO will pay more than $5 million to settle charges that the firm misled investors about the effect the documentary Blackfish had on the company’s reputation and business. The SEC had alleged that SeaWorld and former CEO James Atchison made untrue and misleading statements or omissions in SEC filings, earnings releases, and press statements concerning the impact that the negative publicity from Blackfish had on attendance at the company’s amusement parks (SEC v. SeaWorld Entertainment, Inc. , September 18, 2018).

Released in theaters in July 2013, Blackfish received considerable media attention for its highly critical portrayal of SeaWorld’s treatment of its orcas, also known as killer whales. Labeled by SeaWorld as "propaganda," the documentary attempts to show the negative impact that life at SeaWorld had on Tilikum, an orca involved in the fatalities of several individuals, including the death of SeaWorld trainer Dawn Brancheau in 2010.

Blackfish effect. In a complaint filed in federal court in New York, the SEC alleged that from approximately December 2013 through August 2014, SeaWorld and Atchison deceived the purchasers of SeaWorld Stock by failing to disclose the "Blackfish effect" to investors. For example, in an article published on December 20, 2013, Atchison stated that "As much data as we have and as much as we look, I can’t connect anything really between the attention that the film has gotten and any effect on our business." This statement followed just four days after Atchison expressed concern in an email about several high-profile musical acts cancelling their performances at SeaWorld because of Blackfish. In the email, Atchison linked the "momentum building" around SeaWorld’s orca program to the wider distribution of Blackfish, adding that he suspected "this trend will not diminish anytime soon, as the film will likely gain an Oscar nomination when they are announced in mid-January."

In early March 2014, the so-called "Blackfish bill" banning orca performances was introduced in the California legislature, creating further bad publicity for SeaWorld. At the end of the first quarter of 2014, overall attendance at SeaWorld’s parks declined approximately 13 percent on a year-over-year basis. By this point in time, the SEC alleged, SeaWorld should have known that Blackfish was a cause of the declining attendance at SeaWorld’s parks. Nevertheless, the company omitted the Blackfish effect entirely when reporting its Q1 2014 results in mid-May 2014, and instead attributed its weak attendance solely to factors other than the film.

On August 13, 2014, however, SeaWorld filed a Form 8-K that acknowledged for the first time that its declining attendance was partially caused by negative publicity connected to Blackfish. Following the filing of the Form 8-K, SeaWorld’s stock price fell approximately 33 percent, causing a loss of approximately $830 million in shareholder value.

Without admitting or denying the allegations, SeaWorld and Atchison have agreed to settle the SEC’s charges, with SeaWorld paying a $4 million penalty and Atchison paying over $1 million in penalty and disgorgement. SeaWorld’s former vice president of communications, Frederick D. Jacobs, agreed to settle a separate fraud charge and to pay disgorgement and prejudgment interest of approximately $100,000.

"This case underscores the need for a company to provide investors with timely and accurate information that has an adverse impact on its business. SeaWorld described its reputation as one of its ‘most important assets,’ but it failed to evaluate and disclose the adverse impact Blackfish had on its business in a timely manner," said Co-Director Steven Peikin of the SEC Enforcement Division.

The case is No. 1:18-cv-08480.

MainStory: TopStory Enforcement FraudManipulation PublicCompanyReportingDisclosure NewYorkNews

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