Tuesday, December 06, 2016

United Airlines pays $2.4 million for easing a public official’s travel woes

By R. Jason Howard, J.D.

United Airlines parent company, United Continental Holdings, Inc., has agreed to settle charges brought by the SEC concerning its reinstatement of an unprofitable route at the behest of a former chairman of the Port Authority of New York and New Jersey (In the Matter of United Continental Holdings, Inc., Release No. 34-79454, December 2, 2016).

South Carolina Route. Following pressure from the former chairman—who exercised authority and influence as a Port Authority official in matters affecting United’s business interests—United’s former CEO approved the South Carolina Route to allow for a more direct flight to the then-chairman’s home in South Carolina.

The route was approved outside of United’s normal processes for route approval despite projections that it would lose money. The route’s approval violated applicable United Airlines compliance and ethics policies, and it ultimately lost approximately $945,000 before it ceased around the time of the former chairman’s resignation from the Port Authority.

The SEC found that United’s officials feared the former chairman’s influence could jeopardize the approval of a hanger project intended to benefit the airline at Newark’s airport. The day the route was approved, the Port Authority approved the lease agreement relating to the hanger.

United violated the Exchange Act because, despite the potential for corruption, it failed to design and maintain internal accounting controls that would have prevented officers from approving the use of United’s assets in that manner and “because its books and records did not, in reasonable detail, accurately or fairly reflect the South Carolina Route Transaction.”

Andrew Ceresney, Director of the SEC’s Division of Enforcement said, “United disregarded the books and records and internal accounting controls provisions of the securities laws while casting aside its normal decision process to reenter one of its hub’s poorest performing markets.”

To settle the matter, United agreed to pay a $2.4 million penalty and to cease and desist from further violations of Exchange Act Sections 13(b)(2)(A) and 13(b)(2)(B).

The release is No. 34-79454.