Hospitality company settles with SEC over executive perks not disclosed

RCI Hospitality has agreed to settle with the Securities and Exchange Commission (SEC) over allegations that it failed to disclose $615,000 in executive compensation in the form of perquisites.

The company has agreed to pay a civil penalty of $400,000. Eric Langan, CEO, has agreed to pay 200,000 while CFO Phillip Marshall, who stepped down last week, will pay $35,000. However, the company did not admit to or deny the findings of the SEC.



RCI operates 38 live-adult entertainment clubs and 10 Bombshell restaurants (the SEC amusingly calls them military-themed!). Due to the pandemic, only 34 were open at the beginning of September. The company’s head office is in NW Houston.

The SEC inquiry began after anonymous bloggers started posting a series of allegations in mid-2018. You can read their reports here and here.

The findings

Among the many findings of the SEC;

  • Langan and Travis Reese, Executive VP – who both hold pilot’s licenses – used RCI-owned aircraft for personal use. The value reported in the annual proxy was the tax value of its use, not the aggregate incremental cost.
  • RCI reimbursed Langan for trips that he took with his girlfriend or for trips that she took alone. This was not disclosed as executive compensation.
  • RCI reimbursed Langan for the use of automobiles by the executives and their families. Only the depreciation of the vehicles was disclosed as compensation.
  • Marshall commuted weekly from his home in Dallas to the Houston corporate office. However, the company failed to disclose the housing and meal allowances it provided Marshall.
  • The company failed to disclose that Langan’s girlfriend was on the payroll between 2014 and 2019, even though she was, effectively, his personal assistant.
  • Between 2014 and 2019, Langan, who lives in Bellaire, directed the company to make $119,655 of donations to the private school that two of his children attended.
  • The company hired Langan’s father and brother to make almost $500,000 worth of patio furniture for the Bombshell’s restaurants. This was not disclosed.

The SEC founds that the company’s internal controls were lacking. However, it noted that the company has been undertaking remedial efforts including hiring outside counsel to conduct an independent investigation and implementing new internal controls and policies.

https://www.sec.gov/litigation/admin/2020/34-89935.pdf

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