October 20, 2020
Authored by: Jason Semmes and Therese Pritchard
On October 15, 2020, the Securities and Exchange Commission (“SEC”) announced settled charges against U.S. refiner Andeavor LLC (“Andeavor”) for inadequate controls related to a stock buyback plan it executed while it was in talks to be acquired by Marathon Petroleum Corp. in 2018. Without admitting the SEC’s findings, Andeavor agreed to pay a $20 million penalty to settle the charges.
According to the SEC, in March of 2017 Andeavor’s then-Chairman and CEO began confidential discussion with Marathon’s Chairman and CEO about a potential business combination. After months of analysis regarding the potential synergies that a combined company would produce, the CEOs agreed to suspend their discussions. Then in February 2018, just two days before a meeting to resume talks about a potential deal, Andeavor’s CEO directed its then-CFO to initiate a share buyback to repurchase $250 million of shares. The SEC found that Andeavor’s internal accounting controls failed to ensure the buyback adhered to the company’s securities trading policy, a policy that prohibited repurchases while the company was in possession of material non-public information.
Andeavor used an abbreviated and informal process to evaluate whether the requirements for the buyback were satisfied. That process did not require conferring with persons reasonably likely to have material non-public information about corporate developments prior to approval of the share repurchase. As a result, no one involved in Andeavor’s process discussed with Andeavor’s CEO the prospects that Andeavor and Marathon would agree to a deal. Because they did not do so, the company