The Securities and Exchange Commission brought an action against SeaWorld Entertainment Inc. and its former CEO. They agreed to pay more than $5 million to settle fraud charges for misleading investors about the impact the documentary film Blackfish had on the company’s reputation and business. SeaWorld’s former vice president of communications also agreed to settle a fraud charge for his role in misleading SeaWorld’s investors.
The Blackfish movie sharply criticized SeaWorld’s treatment of its featured attraction: orcas. These huge, smart marine mammals were the main attraction at SeaWorld and central to the SeaWorld’s marketing.
I went to the San Diego SeaWorld a decade ago because whales were one of my son’s favorite subjects. The orca show was his favorite part of the trip. (Other than the two-foot long dolphin plushie I was lured into buying at my son’s insistence.)
The problem is that SeaWorld ignored the effects of Blackfish in its shareholder reporting.
The movie caused significant media attention on orcas in captivity as the film became widely distributed in 2013. The SEC’s complaint alleges that from approximately December 2013 through August 2014, SeaWorld and former CEO James Atchison made untrue and misleading statements or omissions in SEC filings, earnings releases and calls, and other statements to the press regarding Blackfish’s impact on the company’s reputation and business.
On Aug. 13, 2014, SeaWorld finally acknowledged in shareholder communication that its declining attendance was partially caused by negative publicity, and SeaWorld’s stock price fell by 33%. The SEC charges that SeaWorld should have said something sooner.
“This case underscores the need for a company to provide investors with timely and accurate information that has an adverse impact on its business. 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.” – Steven Peikin, Co-Director of the SEC Enforcement Division.
In August 2013, SeaWorld noticed a drop in attendance. SeaWorld denied there was a link between the movie and the drop in attendance.
In September 2013, SeaWorld conducted a reputation study and found that its reputation had fallen by 12.8% from the proper year. That study also showed that those who were aware of the Blackfish movie had 32% less favorable opinions. Things got worse and worse.
It seems clear that SeaWorld took too long to disclose the Blackfish effect. What’s missing is when SeaWorld should have stated the connection.
One piece of the complaint that rubs me the wrong way is the SEC’s continued war on the use of “may.”
SeaWorld filed an S-1 in March 2014. It said:
Our brands and our reputation are among our most important assets. Our
ability to attract and retain customers depends, in part, upon the external
perceptions of the Company, the quality of our theme parks and services and our
corporate and management integrity. . . . An accident or an injury at any of our
theme parks . . . that receives media attention, is the topic of a book, film,
documentary or is otherwise the subject of public discussions, may harm our
brands or reputation, cause a loss of consumer confidence in the Company,
reduce attendance at our theme parks and negatively impact our results of
operations.
The SEC complaint says: By couching the reputation and business impacts as hypothetical events that “may” occur, SeaWorld made untrue or misleading statements. I’m not sure that “will” is the right word to use there. But the SEC points out that SeaWorld knew that the movie was having a negative impact and should have clarified that “may.”
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