ORLANDO, Fla. – The U.S. Securities and Exchange Commission began investigating SeaWorld Entertainment Inc. executives more than a year ago, recently filed court records show.
That probe, and a separate investigation being conducted by the U.S. Department of Justice, concerns allegations made by SeaWorld shareholders in a lawsuit against the company, the plaintiffs' attorneys indicated in court records.
Last month, SeaWorld announced it had received subpoenas from the two federal agencies concerning statements made by the company executives on or before August 2014, including statements regarding the impact of the documentary "Blackfish."
The film, which was released in the summer of 2013, criticized the practice of keeping killer whales in captivity.
In the years following the documentary's release, SeaWorld's stock price dropped, several executives resigned, and public pressure prompted the company to end its killer whale breeding program.
In September 2014, a group of SeaWorld shareholders filed a federal lawsuit against the theme park operator, claiming executives misled them about attendance problems they believe were caused by "Blackfish."
Shortly after the documentary first aired on CNN, former SeaWorld CEO Jim Atchison denied "Blackfish" was hurting the company, instead attributing attendance declines to bad weather, the timing of holidays and higher admission ticket prices.
"I scratch my head if there's any notable impact from this film at all," Atchison told the Wall Street Journal in November 2013.
Between Dec. 2, 2013, and March 6, 2014, Atchison sold 154,000 shares of his personal holdings in SeaWorld stock with proceeds of $4,662,235, according to the lawsuit.
On Aug. 13, 2014, while reporting poor quarterly earnings, SeaWorld officials announced a 4.3 percent decline in attendance, which they partially blamed on school calendars and new attractions at competing theme parks, such as Walt Disney World and Universal.
For the first time, however, the company also acknowledged the attendance drop "was impacted by demand pressures related to recent media attention surrounding proposed legislation in the state of California," according to a filing with the U.S. Securities and Exchange Commission.
The proposed California law would have banned the display of captive killer whales for entertainment purposes. The bill's sponsor, California Assemblyman Richard Bloom, said the proposed law was partially inspired by "Blackfish."
"The company had finally admitted that 'Blackfish' was hurting attendance at SeaWorld parks," states the lawsuit.
Almost immediately after SeaWorld announced those poor quarterly results in August 2014, the company's stock price plummeted nearly 33 percent. As a result, two of the investors suing SeaWorld,- the Arkansas Public Employees Retirement System and a teacher's pension fund based in Denmark - said they suffered more than $4 million in losses.
Although the lawsuit claims Atchison possessed inside information concerning the impact "Blackfish" was having on attendance, the plaintiffs do not directly accuse the former CEO of illegal insider trading. Rather, the plaintiffs suggest Atchison's financial transactions indicate a possible motive for misleading investors.
"(The) sales were suspiciously timed in that they were Atchison's only sales" between SeaWorld's initial public offering in April 2013 and the stock price plunging in August 2014, according to the lawsuit. The plaintiffs also claim "these sales were suspicious" because Atchison disposed of 20 percent of his total holdings of SeaWorld common stock during that period.
Atchison's trades were made pursuant to a Rule 10b5-1 trading plan, according to the lawsuit. The rule, established by the SEC, helps company executives avoid accusations of illegal insider trading by allowing them to schedule predetermined stock transactions prior to gaining insider information.
"The company has not disclosed any facts about Atchison's Rule 10b5-1 trading plan," according to the lawsuit. "Thus pertinent facts, such as when Atchison entered into the plan are not available because they have not been publicly disclosed."
Attorneys for Atchison and SeaWorld have denied the allegations outlined in the lawsuit.
In an SEC filing last month, SeaWorld announced that it was the target of two federal investigations.
"In June 2017, the Company received a subpoena in connection with an investigation by the U.S. Department of Justice concerning disclosures and public statements made by the Company and certain executives and/or individuals on or before August 2014, including those regarding the impact of the 'Blackfish' documentary, and trading in the Company’s securities," the filing stated.
"The Company also has received subpoenas from the staff of the U.S. Securities and Exchange Commission in connection with these matters."
Weeks later, attorneys for the plaintiffs filed a notice in the shareholder lawsuit indicating the federal investigations were "concerning events at issue in" their litigation.
In addition, the plaintiffs' attorneys pointed out that they had notified the court about the SEC investigation in May 2016.
That notice was filed under seal, so the public did not learn of the SEC probe until more than a year later, when SeaWorld first addressed it.
"On June 16, 2017, the Company's Board of Directors formed a Special Committee comprised of independent directors with respect to these inquiries," SeaWorld officials wrote in the SEC filing. "The Company has cooperated with these government inquiries and intends to continue to cooperate with any government requests or inquiries."