The U.S. Securities and Exchange Commission (SEC) recently announced that United Continental Holdings Inc. (NYSE: UAL) has agreed to pay $2.4 million to settle charges in a case where shareholders wound up footing the bill so a public official could get more convenient flights.
According to the agency, United reinstated a nonstop flight between Newark, N.J., and Columbia, S.C., at the behest of David Samson, the then-chairman of the Port Authority of New York and New Jersey, who sought a more direct route to his home in South Carolina.
The route previously experienced poor financial performance and was canceled by Continental Airlines prior to its merger with United, and a preliminary financial analysis conducted after Samson began privately advocating for the route’s return revealed it would likely lose money again.
It is believed that United officials feared Samson’s influence could jeopardize United’s business interests before the Port Authority, including the approval of a hangar project to help the airline at Newark’s airport. The company ultimately decided to initiate the route despite the poor financial projections.
The same day that United’s then-CEO approved initiation of the route, the Port Authority’s board approved the lease agreement related to the hangar project. United employees were told “no proactive communications” about the new route.
Furthermore, the SEC noted that United circumvented its standard process for initiating new routes, and no corporate record at United accurately and fairly reflected the authorization to approve the money-losing flight route from Newark to Columbia. The route ultimately lost roughly $945,000 before it ceased again roughly around the time of Samson’s resignation from the Port Authority.
Samson has pleaded guilty to bribery in a criminal case announced in July. Also United entered into a non-prosecution agreement with the U.S. Attorney and paid $2.25 million.
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