On October 23, 2020, the Securities and Exchange Commission (“SEC”) announced a $20 million settlement with Andeavor LLC for “controls violations relating to a stock buyback plan it implemented while it was in [confidential] discussions to be acquired by Marathon Petroleum Corp. in 2018.” By way of background, a stock buyback “occurs when a company buys back its shares from the marketplace with its accumulated cash. . . .The repurchased shares are absorbed by the company, and the number of outstanding shares on the market is reduced.” As stock buybacks are complex transactions with their own shareholders, the SEC thus requires that companies have “effective controls” before undertaking them. Here, the SEC alleged that Andeavor did not have “internal accounting controls” when its CEO directed the company’s CFO to initiate a $250 million stock buyback, even though “company policy prohibit[ed] repurchases while Andeavor was in possession of material non-public information.” As a result, Andeavor “repurchased 2.6 million shares of its stock from investors at an average price of $97 per share in February and March of 2018.” Yet, just one month later, the Company announced that it would be acquired by Marathon in a deal that valued at Andeavor at over $150 per share.
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About Richard W. Gonnello
Richard W. Gonnello is a partner in Faruqi & Faruqi, LLP's New York office and Chair of the firm's Securities Litigation Practice Group.