Omega Protein Corporation has settled with the Securities and Exchange Commission (SEC) over allegations that it misrepresented that it was in compliance with covenants on its loan agreements.
The company has agreed to pay a penalty of $400,000. Omega settled without admitting or denying the findings in the SEC order
Business financed by federal loans
Omega, which had its head office in west Houston, was publicly traded until it was taken over by Cooke Inc, a private Canadian company, for $500 million in December 2017.
The company’s biggest business is the production of fish oil for use as a protein ingredient in animal feed. It has facilities in Virginia, Mississippi and Louisiana. Historically, a significant source of Omega’s external financing was the federal government, which provided loans as part of a broader program to support the national fishing and acquaculture industry.
Omega had been a repeat offender of the Clean Water Act. It had pleaded guilty to criminal charges in 2013 over pollution in Reedville, Virginia. The company paid a fine of $5.5 million. It also made a $2 million payment to the National Fish and Wildlife Foundation.
In January 2017, it again pleaded guilty to criminal counts of pollution through illegal discharges at its Abbeville, Louisiana facility. This time the fine was $1 million.
The pollution in Louisiana actually occurred in December 2014. A whistleblower called the company ethics hotline in March 2015. This was before the company filed its annual report. However senior management only became aware of it a month later. This was because the hotline system Omega had put in place failed to notify the appropriate executives.
Breach of Covenant
As part of its 2014 annual report, the senior management of the company certified that it was in compliance with all environmental obligations. That was a covenant put in place on the federal loans after the first guilty plea.
The subsequent quarterly reports for 2015 also falsely claimed that the company was in compliance. In fact the company would have had to pay accelerated interest on its $21 million federal debt, if a default had been declared.
To make matters worse, a default on the federal loans was grounds for a cross default on the company’s commercial credit facility. Instead, during 2015, the company increased its commercial credit facility and used that to pay off the federal loans.
To put the $400,000 penalty in context, the 5 senior executives of Omega received cash bonuses of $1.9 million for the 2015 fiscal year.