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SAN FRANCISCO — Regulators have slapped Credit Karma with a penalty linked to the fast-expanding financial services technology company’s failure to properly disclose the issuance of stock options to its employees.
The Securities and Exchange Commission penalized Credit Karma $160,000 for the regulatory violations. Credit Karma failed to properly register certain stock option offerings issued to employees, the SEC said.
“Registration requirements exist to ensure that all investors have access to important information before deciding to invest” Jina Choi, director of the SEC’s office in San Francisco, said in a prepared release on Tuesday. “This is equally true for employees who are investors in the companies where they work.”
San Francisco-based Credit Karma has, since 2011, provided equity grants to employees in the form of stock options, according to an SEC filing that detailed the violations and Credit Karma’s settlement with the federal regulators.
“From Oct. 1, 2014, through Sept. 30, 2015, Credit Karma issued approximately $13.8 million in stock options to its employees,” the SEC filing stated.
The $13.8 million exceeded a regulatory threshold of $5 million above which issuers of stock options must provide a full disclosure about the issuance of the stock. Corporate financial information and risk factors are often included in registration statements.
Credit Karma issued the stock options at a time when the company hired employees at a dramatic pace amid explosive growth in the company’s members. Tech companies, large and small, often use stock options as tools to recruit and retain skilled workers.
“Between 2014 and 2016, Credit Karma headcount increased by a factor of five to support an additional 20 million new members,” Credit Karma stated in comments emailed to this news organization.
At the outset of 2014, Credit Karma employed roughly 100, and by the end of 2016, the headcount had zoomed to about 500.
At present, Credit Karma employs roughly 750 workers, of which the vast majority are in San Francisco. About 50 work in North Carolina and 20 are working in the Southern California town of Venice Beach, according to the company.
“All new employees were offered equity and, given the value of the equity, we triggered a requirement to provide equity holders with certain financial information and disclosures,” Credit Karma said Tuesday.
Certain Credit Karma executives were aware, as early as April 2015, of the requirements to provide disclosures regarding the stock option issues, the SEC filing stated. The SEC didn’t identify the executives.
“For the next eleven months after August 2015, Credit Karma continued to grant employees stock options and allowed them to exercise their vested stock options granted in the unregistered offering,” the SEC stated in its filing. “Although Credit Karma periodically provided certain limited financial information to its employees, it failed to deliver to the employees the complete financial information and disclosures required.”
The violations have ceased, according to Credit Karma.
“We have been in full compliance since mid-2016,” the company stated in the emailed comments.
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