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Tue 24 Sep 2019 08:35 AM

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Nissan, Carlos Ghosn fined over claims they hid $140m in pay

Japanese prosecutors also have accused Ghosn of transferring personal losses to Nissan and using company funds for financial transactions in the Middle East

Nissan, Carlos Ghosn fined over claims they hid $140m in pay
Ghosn’s decision to conceal his pay stemmed from a 2010 Japanese rule that forced executives to disclose their total compensation.

Nissan Motor Co. and Carlos Ghosn settled US regulators’ claims that they failed to disclose more than $140 million in pay to the embattled ex-chairman, one of the first legal accords in a saga that has put the automaker on its heels and tarnished the reputation of a business icon.

Nissan was fined $15 million over the allegations, while Ghosn, 65, was hit with a $1 million penalty, the Securities and Exchange Commission said in a Monday statement.

The SEC said the Japan-based automaker granted Ghosn broad authority over the company’s pay decisions, with the startling power to set compensation for himself, other executives and directors. That ultimately led to Ghosn - with substantial assistance from his subordinates - excluding more than $90 million in his own pay from Nissan’s public statements to investors. Ghosn additionally took steps to increase his retirement allowance by $50 million, according to the regulator.

The SEC also reached a settlement with former Nissan director Greg Kelly, who agreed to pay a $100,000 fine over allegations that he helped hide Ghosn’s pay. Ghosn was barred from serving as a director or officer of a public company for 10 years, while Kelly agreed to a five-year ban. Nissan, Ghosn and Kelly, 63, all resolved the cases without admitting or denying wrongdoing.

Prompt implementation

Nissan, based in Yokohama, said in a statement that it cooperated fully with the SEC and has “promptly implemented remedial acts to prevent recurrence.” The company laid blame on Ghosn and Kelly, saying the executives’ alleged misconduct “serves as the basis for Nissan’s liability.”

Lawyers for Ghosn and Kelly said the decision to settle with the SEC should have no bearing on separate Japanese cases against their clients.

“Greg is a guy with limited resources,” said James Wareham, a Washington-based attorney for Kelly. He said his client settled so that he can concentrate on the case he faces in Japan.

Attorneys for Ghosn said they were pleased to put the SEC matter behind them in order to focus on an ongoing criminal case in Japan.

Nissan shares trade in the US via American Depositary Receipts, which generally gives the SEC enforcement authority although the alleged improprieties took place mostly in Japan and Europe.

Japanese rule

Ghosn’s decision to conceal his pay stemmed from a 2010 Japanese rule that forced executives to disclose their total compensation. Instead of complying - and risking negative media coverage - Ghosn crafted various strategies to obscure how much he received from Nissan, according to the SEC. Tactics included entering into secret contracts, backdating letters granting himself cash bonuses and manipulating his pension allowance, the regulator said.

Ghosn and Kelly face trials in Japan stemming from their alleged roles in masking pay. Japanese prosecutors also have accused Ghosn of transferring personal losses to Nissan and using company funds for financial transactions in the Middle East.

French prosecutors have opened their own investigation into Ghosn, who previously served as Renault SA’s chairman. The probe was initiated after Renault disclosed that Ghosn may have improperly used a company sponsorship deal to host his 2016 wedding party at the Palace of Versailles. The French automaker also has alerted French prosecutors to millions of euros paid by Ghosn to a distributor in Oman.

A spokesperson for the French prosecutor declined to comment on the investigation Monday.

Ghosn’s wealth

Nissan has been eager to move beyond the scandal, which comes at a time when its growth has stalled and profits are dropping. Earlier this month, Nissan CEO Hiroto Saikawa stepped down after admitting he had been overpaid. A replacement is expected to be appointed by the end of October.

Inside Nissan, the allegations involving Ghosn continue to reverberate. The Wall Street Journal reported Monday that some Nissan lawyers have raised concerns that the company’s internal investigation into the matter wasn’t appropriately independent because the law firm that conducted it has had a long relationship with the automaker.

The SEC fines are unlikely to have a major impact on the finances of Nissan or its former executives. Nissan expects to earn an operating profit this year of 230 billion yen ($1.2 billion) and Ghosn had an estimated net worth of about $120 million earlier this year, according to an analysis by the Bloomberg Billionaires Index. Kelly’s net worth is unknown, but he owns two properties in the US -- his primary residence in Tennessee and a vacation home in Florida.

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