SoftBank Said to Face Inquiry Over Alleged Arora Conflicts

SoftBank Said to Face U.S. Inquiry
  • U.S. Securities and Exchange Commission is checking complaints
  • SoftBank, Arora have denied any wrongdoing or conflict

U.S. regulators are examining SoftBank Group Corp. over allegations about Nikesh Arora’s activities before he resigned as president last week, according to people familiar with the matter.

The Securities and Exchange Commission office in Los Angeles is looking into whether Arora had conflicts of interest or engaged in questionable behavior as well as SoftBank’s disclosures to investors, said the people, who asked not to be named because the matter isn’t public. The opening of an SEC inquiry is typically a preliminary step and doesn’t mean SoftBank or Arora, neither of whom have been accused of wrongdoing, will ever face an enforcement action.

Arora, 48, said June 21 he would step down after a SoftBank investor group had called on the company’s board to investigate the executive over his qualifications, compensation and potential conflicts of interest due to his role as an adviser at a private equity firm. After the investor complaints, a committee of independent directors at SoftBank cleared Arora of any wrongdoing a day before his resignation. The company said his departure had nothing to do with the investor criticisms.

Stock Declines

Shares in SoftBank, which had been up during morning trade, reversed course after news of the inquiry, falling as much as 3 percent. The stock finished 0.3 percent lower in Tokyo.

“Some people are selling the stock on this news, but since the suspicions are directed at Arora, there is no chance this could damage the company’s value long term,” said Hideki Yasuda, an analyst at Ace Research Institute in Tokyo.

Judy Burns, a spokeswoman at the SEC, declined to comment. Arora referred questions to the company.

‘Without Merit’

“SoftBank Group does not comment on press reports of regulatory inquiries,” the Tokyo-based company said in a statement. “It notes, however, that a special committee of independent members of its board of directors, acting with the assistance of independent counsel, reviewed the allegations in the purported shareholder demand concerning the conduct of its former president and chief operating officer. The special committee concluded that claims were without merit.”

In an interview last week, Arora said that he decided to step down after founder Masayoshi Son told him he wouldn’t be promoted to the CEO job at SoftBank next year as the two had previously discussed. Son, 58, said he had reflected on ceding the role and decided he felt too driven and energetic to give up control.

“I’ll be forever young, that’s what I want to keep thinking,” Son said in a briefing in Tokyo with Arora and several reporters. “I want to keep going until I lose confidence in my physical strength. And I’ll want to keep holding on to the rudder more and more as the day of retirement approaches. I feel really terrible for having inconvenienced Nikesh, but it would not be good to go out while holding my feelings back.”

Decisions Vetted

The investor group raised concerns about Arora in an 11-page letter to the board dated Jan. 20. Besides the alleged conflicts of interest, the investors criticized the executive’s investment performance, his compensation of more than $100 million in his first year and what they called “questionable transactions.” A separate letter from one investor to the board of Sprint Corp., which SoftBank controls, asked for his removal as a director there for similar reasons.

When the letters were originally made public in April, SoftBank and Son defended Arora and denied he had done anything wrong. The company said it vetted any potential conflicts in Arora’s investment decisions and had confidence in his management. “I have complete trust in Nikesh and one thousand percent confidence in him and know he will continue to do great things for SoftBank in the future,” Son said in a statement at the time.

Shock Departure

Arora said then that he had always given priority to the company’s interest and had been careful to share any information that would present a potential conflict. “I think my track record speaks for itself,” he said. “Since my time at SoftBank, the last 18 months, I always strived to put the company first and I think none of the comments have any substantive bearing in fact.” 

His departure last week came as a surprise at SoftBank. Son had recruited Arora from Google Inc. in 2014, promoted him to president a year ago and publicly called him the heir apparent. SoftBank had also made Arora one of the highest-paid executives in the world, with compensation of 8.04 billion yen ($78 million) in the last fiscal year and 16.6 billion yen the year before.

The original SoftBank letter came from the American law firm Boies Schiller & Flexner on behalf of unidentified investors and was signed by Matthew Schwartz, a partner at the New York firm. Boies Schiller has since resigned as counsel because of a conflict of interest. The investors have hired as a replacement the New York attorney Ira Lee Sorkin, best known for representing Bernard Madoff after he was accused of perpetrating the largest investor fraud in American history.

Sorkin, who previously worked in the U.S. Attorney’s office and the SEC in New York, said he is reviewing the investor complaints and it’s too early to determine how Arora’s resignation will affect the action.

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