Did Verizon Violate Securities Rules?

On April 12, 2007, Verizon sent an e-mail communication to its employees. In response, the AFL-CIO filed a complaint on April 19, 2007, with the Securities and Exchange Commission, accusing Verizon of false and misleading statements. According to the AFL-CIO's letter:

• Verizon "impugns the character and integrity of the AFL-CIO" by making several claims with "questionable factual foundation." In particular, it accused the AFL-CIO of questioning Verizon's investment strategy in "the best wireline and wireless networks." The AFL-CIO contended there were no statements that would lead an objective observer to draw such a conclusion;
• The Company dismisses the AFL-CIO's computation of CEO Ivan Seidenberg's pay – $110 million over 5 years according to calculations made from Verizon's own proxy statements – by suggesting it was "nearly twice what Seidenberg actually received." Yet, the e-mail fails to offer a basis for such a claim (curious since the AFL-CIO used the Company's data);
• The Company e-mail compares Mr. Seidenberg's pay favorably to a group of companies who have recently filed proxy statements. Unfortunately, these are not the peer companies that are listed in this year's proxy statement and used by the Human Resources Committee to set pay. A comparison of Mr. Seidenberg's pay and the CEO pay in the 46 companies of the two peer groups listed in the proxy showed 2005 pay 75% above the median of "industry" companies and 94% above the "market" peers. Yet, the proxy claims to target in the 50th to 75th percentile.

The AFL-CIO’s letter notes that this e-mail communication may have been sent to as many as 242,000 employees, the vast majority of whom are shareholders. Communications with shareholders cannot contain false or misleading statements in connection with a proxy solicitation.

The AFL-CIO letter to the SEC is a publicly available document. Read a copy here.

For a copy of the Verizon Letter to employees/shareholders (Appendix A of the AFL-CIO letter), click here

For a copy of Appendix B, click here

For a copy of Appendix C, click here

We have two additional observations of this e-mail communication:

• It repeats the tired claim of the Company that "89% of [Mr. Seidenberg's] compensation is performance-related and at risk." Unfortunately, it fails to explain how the Human Resources Committee can set executive pay in such a way that both short- and long-term pay can be given to Mr. Seidenberg even if the Company's is below par as compared to the peers listed in the proxy statement;
• While congratulating itself that Mr. Seidenberg has no employment agreement, it fails to mention that if CEO Ivan Seidenberg were to depart, that would trigger compensation amounting to at least $32 million, along with $14 million of company-bequeathed deferred compensation and over 4 million stock options.