Fraser’s Free Services for NIC Not Really for Free

Jack Humphrey, Regulatory journalist
January 13, 2011 /

Contrary to disclosures made to investors, NIC Inc. has actually been paying improperly documented perks to its former CEO Jeffrey Fraser amounting to more than $1.18 million for his services to the government websites provider claimed by NIC officials to be free.

The Securities and Exchange Commission’s filing dated January 12, 2011 said that NIC Inc. did not properly disclose in its public filings to investors the “wide-ranging perks” shelled out for Fraser, his girlfriend, and his family, including expenses on vacations, computers, and day-to-day living charged to NIC. The said perks covered a six-year period.

In the lawsuit filed at a Kansas federal court, the SEC said that NIC has paid Fraser more than $4,000 per month for his Wyoming ski lodge. The SEC also alleged that NIC bore expenses of Fraser’s private aircraft expenses when commuting from Wyoming to NIC’s Kansas headquarters, his expenses for a rented house in Kansas, payments for a leased Lexus SUV, and expenses for his flight training, hunting, skiing, spa and health club.

NIC executives misstated disclosures regarding Fraser’s perks in 2006 and 2007 in addition to misleading disclosures from 2002 to 2005, the SEC said.

The complaint also charged NIC’s former chief accountant Stephen Kovzan, former finance executive Eric Bur, and NIC’s chief executive officer Harry Herington of abetting the misrepresentations in Fraser’s perks.

According to SEC, Kovzan permitted the understatements in NIC’s reports to the auditors even when he knew the dubious characteristics of Fraser’s expenditures as reflected in the books of NIC. Kovzan eventually circumvented NIC’s internal regulations requiring the CEO to properly document the nature of every expenditure.

Furthermore, Bur and Herington, who was then NIC’s chief operating officer, both did not address the problems found in the reports on Fraser’s perks even if reports were submitted to them alleging that Fraser have not submitted justifiable documents to support his expenses, some of which are not business-related according to one employee in the finance department of NIC. Bur and Herington signed NIC’s misstated public filings even after knowing the problems, the SEC claimed.

NIC did not inform investors that Fraser misclassified his expenses in their public filings, the SEC added.

NIC, Fraser, Herington, and Bur agreed to settle SEC’s charges by paying $2.8 million overall while litigation against Kovzan is ongoing.

 

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