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SeaWorld, ex-CEO agree to pay $5M to settle SEC fraud charges they hid 'Blackfish' effect

SeaWorld and its former CEO, James Atchison, will pay more than $5 million to settle federal fraud charges that they misled investors about the impact the 2013 anti-captivity documentary “Blackfish” had on the theme park company.

The U.S. Securities and Exchange Commission, which had been investigating the Orlando, Fla.,-based company for more than a year, announced the settlement Tuesday, the same day it also filed a complaint in federal court charging SeaWorld Entertainment and Atchison with violating anti-fraud provisions of federal securities laws.

The SEC, in a news release, said that SeaWorld will be fined $4 million and Atchison will be assessed more than $1 million in penalties and “disgorgement” related to the sale of company stock.

Both SeaWorld and Atchison are settling without admitting or denying the allegations. The settlement is still subject to court approval.

SeaWorld’s former vice president of communications, Fred Jacobs, also agreed to settle a fraud charge and will pay disgorgement and interest accrual of approximately $100,000. The SEC said he was not assessed a penalty because of his “substantial assistance” in the SEC’s investigation.

The commission’s complaint, filed in federal court in New York, alleges that between December of 2013 and August 2014, SeaWorld and Atchison made misleading statements or omitted from SEC filings and earnings releases information regarding the true impact “Blackfish” was having on the company’s reputation and business.

In doing so, they engaged in a course of action “they should have known would operate as a fraud or deceit upon the purchasers of SeaWorld stock,” the SEC charged.

It was not until August of 2014, more than a year after the documentary’s release, that SeaWorld acknowledged for the first time that falling attendance was due in part to negative publicity surrounding issues raised by the film, which focused on the killer whale Tilikum, responsible for the death of SeaWorld Orlando trainer Dawn Brancheau.

Although SeaWorld’s acknowledgement did not refer to “Blackfish” specifically, the SEC points out in its court filing that “SeaWorld had finally disclosed that ‘Blackfish’ was negatively affecting its business and that the ‘Blackfish’ effect...was qualitatively material to investors.”

Following that disclosure, SeaWorld’s stock price fell from $28.15 to $18.90 — a 33 percent drop that resulted in an $830 million loss in shareholder value, the SEC complaint states. The announcement also led Wall Street analysts to downgrade the stock to a sell recommendation, the SEC further states.

“This case underscores the need for a company to provide investors with timely and accurate information that has an adverse impact on its business,” said Steven Peikin, co-director of the SEC Enforcement Division. “SeaWorld described its reputation as one of its ‘most important assets,’ but it failed to evaluate and disclose the adverse impact ‘Blackfish’ had on its business in a timely manner.”

In its own SEC filing Tuesday, SeaWorld said it had cooperated with the commission and was “pleased to have resolved this matter and to continue to focus on delivering superior guest experiences, world-class animal care and rescuing animals in need.”

In recent months, SeaWorld, which is currently operating with interim CEO John Reilly at the helm, has seen a marked improvement in attendance and revenues, and its stock price has rebounded, soaring 124 percent since the beginning of this year.

Still, the SEC’s filing offers a window into SeaWorld’s corporate world at a time when negative publicity was mounting in the wake of the documentary’s critical take on how the marine parks’ orcas are treated.

The complaint documents canceled musical acts, the severing of longtime relationships with corporate partners, and discouraging survey results that led a senior communications official to describe SeaWorld’s reputation in late 2013 as “positively radioactive.”

As early as September of 2013, SeaWorld was seeing signs of a tarnished reputation, as evidenced in an annual study that revealed its reputation score had fallen 12.8 percent. Internally, Atchison called the results “painful.”

SeaWorld San Diego, the SEC notes, was especially affected by “Blackfish” because roughly 75 percent of its attendance comes from local visitors who surveys showed were most aware of the documentary and as a result were most likely to be dissuaded from visiting a marine life park like SeaWorld.

As evidence of a deepening backlash grew, a senior official at the San Diego park told a corporate officer in April of 2014 that the “situation is grave,” according to the SEC filing.

But by the time the company reported its first-quarter earnings a month later, it made no mention of a possible “Blackfish effect,” and “instead attributed its weak attendance solely to factors other than the film, which the Defendants should have known was untrue and/or a misleading omission of a material fact,” the SEC charged.

Its complaint also alleges that Atchison failed to disclose information about the film’s negative fallout to underwriters of an April 9, 2014 secondary offering. While the underwriters asked specific questions about how the film was affecting business, Atchison told them there had been no impact.

During that same period in early 2014, Atchison sold SeaWorld stock as part of a previously approved trading plan, but the SEC asserts that the stock’s value was inflated because of the information it says Atchison knowingly withheld. As a result, the SEC says Atchison was able to avoid losses of roughly $730,860 on his stock sale.

With the SEC probe now having drawn to a close, there remains an ongoing investigation by the U.S. Department of Justice into similar issues. SeaWorld also is in the midst of a class-action suit accusing it of misleading shareholders about how “Blackfish” contributed to falling attendance and revenue.

lori.weisberg@sduniontribune.com

(619) 293-2251

Twitter: @loriweisberg

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