Risk & Compliance

Donaldson’s Former Company Probed by SEC

This investigation may mark the first time the commission has probed the role played by its own chairman based on his former role as a corporate di...
Stephen TaubJuly 6, 2004

A company whose audit committee formerly included Securities and Exchange Commission chairman William Donaldson confirmed published reports that it is being investigated by the SEC.

EasyLink Services Corp., a provider of electronic information exchange services, said Thursday that the SEC is reviewing certain transactions accounting for about $3 million of revenue generated by its former advertising network business in 2000. The company said it believes the regulator is in part reviewing whether and to what extent the $3 million may be recognized under rules relating to accounting for advertising barter transactions, which became effective in January 2000.

EasyLink stressed that substantially all of the revenue being reviewed was reported after the company announced its intention to sell its advertising network business, a transaction completed in March 2001. In a press release, the company said it has “taken the position that the transactions at issue are not material to the company’s 2000 financial statements.”

EasyLink was formed in 1995 by Gerald Gorman, an investment banker who spent 12 years with Donaldson, Lufkin & Jenrette, an investment banking firm that Donaldson co-founded, according to the Associated Press. It went public in 1999 as Mail.com Inc., and the stock zoomed to a high of $271 that year. It now trades for less than $1.50.

Gorman, EasyLink’s first chief executive officer, is currently the chairman.

Donaldson sat on the board’s compensation committee from 1999, after the company went public, until late 2002, when he was offered the SEC job, according to the AP. He was also a member of the audit committee from 2000 until he left the board,.

On Friday, the SEC fired off a statement asserting that Donaldson “will not participate in any matter before the commission involving EasyLink.”

The regulator announced that Daniel Nathan, the chief of the Commodity Futures Trading Commission’s Office of Cooperative Enforcement, would act as a special advisor to the commission. The SEC added that the four commissioners (excluding Donaldson) sought the assistance of Nathan — a former Assistant Director of the Enforcement Division of the SEC — to ensure that any action taken in the EasyLink matter is both thorough and consistent with the commission’s historical practices.

According to the Associated Press, EasyLink had previously been criticized for waiving repayment of a loan to chief executive officer Thomas Murawski, a decision made when Donaldson served on its board.

A footnote in EasyLink’s 2002 annual report notes that as part of its employment agreement with Murawski, the company agreed to forgive $235,144 of debt and interest, and paid him $100,000 to partially cover resulting taxes, according to reports.

The AP noted that this investigation may mark the first time the SEC has probed the role played by its own chairman based on his former role as a corporate director.