Omega Protein Corporation manufactured and distributed omega-3 fish oils and fish meal products. Omega financed its operations through federal government programs under Title XI of the Merchant Marine Act of 1936. The Title XI loans were administered by the National Marine Fisheries Service, or NMFS. NMFS regularly required that Omega’s subsidiary, OPI, and Omega provide a “Certification and Indemnification Agreement Regarding Environmental Matters.” The Certification required the Omega entities to make broad covenants such as the Omega entities at all times complied with and were currently in compliance with applicable federal laws and regulations relating to environmental matters and that the entities had not received any notices of violation of any federal laws and regulations relating to environmental matters.
Omega finance personnel engaged in a standardized process for testing the company’s compliance with its Title XI loan covenants. As part of this process, Omega finance personnel used a two-page template document entitled “Title XI Compliance Check Off List.” However, none of the items on the checklist addressed environmental compliance.
In addition, as part of the standardized process at the quarterly close for testing the company’s compliance with its Title XI loan covenants, Omega distributed a questionnaire to corporate officers and key management personnel designed to identify any material noncompliance with environmental requirements. Omega’s Vice President for Operations also completed a quarterly Environmental Certificate regarding the status of compliance with environmental obligations. This information was submitted to Omega’s Disclosure Committee for review in advance of quarterly filings. The Disclosure Committee and the finance personnel reviewed all of the referenced documents and spoke to other Omega employees in order to ensure that the company was in compliance with the line entries on the “Check Off Lists.”
In June 2013, OPI pleaded guilty in the U.S. District Court for the Eastern District of Virginia to two criminal felony counts of violating the Clean Water Act, or CWA. As a result, the Environmental Protection Agency, or EPA, provided a notice to Omega in January 2014 that it was ineligible for receipt of governmental loans or benefits if any part of the work would be performed or if the loan collateral would be located at the facility where the offense occurred. After becoming aware of the EPA’s notice to Omega, NMFS determined in September 2014 not to approve additional loans to Omega under existing commitments made prior to the events that gave rise to the 2013 plea.
Despite the first guilty plea and its associated requirement to implement an environmental compliance program, Omega made no changes to the standardized process at the quarterly close for testing the company’s compliance with its Title XI loan covenants – even the “Title XI Compliance Check Off List” remained the same. Furthermore, Omega made no changes to the standardized process as a result of either the EPA’s notice or NMFS’s decision not to approve additional loans to Omega.
In March 2015, Omega received a report, through its toll-free, 24-hour ethics hotline, of employee theft and illegal dumping at its Abbeville, Louisiana facility. The caller offered to give more information upon a return call. Not receiving one, the caller placed another call to the ethics hotline on the following day, requesting a return call.
Omega did not return these calls in a timely manner in March 2015 because the hotline system Omega put in place failed to notify the appropriate Omega executives.
By April 2015, however, Omega’s senior management had become aware of the calls to the internal hotline, but through a source other than the hotline, and as a result became aware of the allegation of illegal dumping potentially in violation of environmental laws. Shortly thereafter, Omega commenced an internal investigation into the allegations made through the hotline.
In January 2017, OPI pleaded guilty in the Western District of Louisiana to two criminal felony counts of violating the CWA.
In its 2014 annual report on Form 10-K Omega stated that it “was in compliance with all of the covenants contained” in the borrowings outstanding under Title XI. Omega repeated this representation in the three quarterly reports subsequently filed on Form 10-Q with the Commission on May 11, 2015, August 5, 2015, and November 4, 2015.
According to the SEC, these representations were false. OPI admitted in connection with its 2017 guilty plea that it knowingly discharged pollutants into U.S. waters surrounding its Abbeville facility on or about December 8, 2014. Also as already described, following the first guilty plea, Omega made no changes to the “Title XI Compliance Check Off List” and standardized process at the quarterly close for testing the company’s compliance with its Title XI loan covenants, despite the first guilty plea and its associated requirement to implement an environmental compliance program. Furthermore, by April 2015, Omega executives were on notice of an accusation that illegal dumping was taking place at the Abbeville plant. Those accusations were later substantiated by a criminal investigation that resulted in the company’s second guilty plea to criminal felony violations of the CWA.
The SEC charged Omega with violating Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder which require issuers of securities registered pursuant to Section 12 to file with the Commission accurate annual reports. An issuer violates Section 13(a) and Rules 13a-1 and 13a-13 thereunder if it files a report that contains materially false or misleading information. The SEC noted by engaging in the described conduct, Omega violated Rule 12b-20 of the Exchange Act, which requires that reports contain such further material information necessary to make the required statements made in the reports not misleading.
Omega did not admit or deny the SEC’s findings.