The new chief executive officer announcement at Westport Fuel Systems Inc. in January seemed relatively routine.
David M. Johnson would join the company as its CEO, and Nancy S. Gougarty would retire, staying on at the company through a transition period. The board thanked Ms. Gougarty “for her years of service and dedication” to the company.
It was a relatively short time at the top. A tumultuous one, too: Westport, you see, had received multiple subpoenas from the U.S. Securities and Exchange Commission, starting in June, 2017, for an investigation into allegations of bribery in China.
Late last month, the SEC case reached its denouement: Westport paid more than US$4-million in penalties, interest and the return of profits; Ms. Gougarty paid US$120,000. True to form for these types of things, Westport and Ms. Gougarty neither admitted nor denied the allegations. (And neither responded to requests for comment for this column.)
Yet, while the tab was relatively steep for Westport, Ms. Gougarty’s fine represented just a fraction of the pay she walked away with – including, it should be said, performance bonuses the company awarded her even after the subpoenas arrived.
Westport is a never-profitable Vancouver clean-fuel-tech company that listed on the Nasdaq stock exchange in 2008 and subsequently subjected its shareholders to pain: From a high of more than US$50 a share in 2012, the stock fell to little more than US$1 in early 2017. Along the way, it raised new capital at share prices far higher than today.
The Nasdaq listing also made it subject to scrutiny by U.S. regulators. And scrutinize, the SEC did: Public filings show the top market cop of the U.S. wrote repeated letters to the company over the years, questioning its accounting and disclosures, particularly how Westport presented results from its various joint ventures.
This makes what happened with a Chinese joint venture (JV) particularly dumbfounding. According to the findings listed in the SEC settlement unveiled last month, Westport wanted to prepare the Chinese JV for a possible initial public offering. However, an unnamed Chinese government official convinced Westport that a necessary first step was to give a Chinese state enterprise majority control of the JV. And as part of that, the government official said, stock in the JV needed to be transferred, in part, to a private investment fund – where the government official held an ownership stake.
Simply put, the SEC allegations paint a picture of Westport needing to hand over a piece of the company to a government official to grease the skids for an IPO to bring in much-needed cash.
The SEC says that Ms. Gougarty, then Westport’s president, was told by a Westport executive in June, 2014, that the Chinese government official’s personal interest was driving the deal. As negotiations progressed, Ms. Gougarty suggested deal structures that would have the JV buy vehicle parts directly from Westport. And, the SEC says, Ms. Gougarty deleted a sentence from a memo to Westport’s board that revealed the government official had a stake in the private investment fund.
It took nearly two years to close the deal; by August, 2016, Ms. Gougarty was CEO. The SEC says the JV transferred its stock, including the shares, to the private investment fund. The JV and Westport struck a supply deal, and the JV paid a dividend to its owners, including Westport, in excess of past distributions. The SEC says Westport’s books and records, as well as its filings with the SEC, concealed the participation of the private investment fund in the deal.
All of this allowed the SEC to say that Westport and Ms. Gougarty conducted a “bribery scheme” that violated the U.S. government’s Foreign Corrupt Practices Act (FCPA). Charles Cain, chief of the SEC enforcement division’s FCPA unit, said in a statement that “a company’s commitment to compliance is only as strong as the effort put in by senior management. Here, the chief executive exploited weaknesses in the company’s controls to engage in bribery, undermining shareholder interests.”
First, let’s review the severance package Ms. Gougarty received in January of this year: US$585,000, plus US$106,250 in vacation pay and expense reimbursements. In addition, the company let her keep all of her 1.74 million unvested stock awards and removed restrictions on their sale. On the day she left, they were worth a little more than US$2.9-million; at Westport’s August high, they were worth nearly US$5.7-million.
What Westport paid Ms. Gougarty between the time it received the June, 2017, subpoena and her departure is more curious.
The company determined her 2017 performance merited a US$975,000 bonus and a stock award valued at US$672,000. The company also says that in 2018, it determined to give her 1.5 million more share awards as part of her “amended employment contract,” but was unable to do so because of the “blackout rules” in the stock plan.
And, finally, as the board looked on the 2018 performance, presumably some days or weeks before Ms. Gougarty’s resignation, it awarded her a US$130,000 cash bonus for “meeting strategic initiatives” and getting most of the “discretionary” portion of the award.
That cash bonus for 2018 is just about as much as the SEC extracted for what it called a “bribery scheme” that spanned most of Ms. Gougarty’s tenure as a top official at Westport. A tenure that ended not with a costly termination, but in lucrative retirement. Fortunate for her; less so for the shareholders who the SEC said had their interests undermined.
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