Boyd Gaming Fines Provide Lessons to Corporate Boards Concerning the Handling of Sexual Harassment Allegations and Investigations

December 31, 2021 Executive and Board Representation

Last week, Boyd Gaming agreed to pay $150,000 to the Indiana Gaming Commission (IGC) for failing to disclose an internal investigation of sexual harassment allegations that resulted in the resignation of long-time General Counsel Brian Larson.  This fine comes on the heels of similar findings by the Pennsylvania Gaming Control Board (PGCB).  These fines offer critical lessons to corporate boards of licensed and regulated entities about the importance of making reports and disclosures concerning allegations against and investigations of C-Suite Executives.

Boyd operates casinos and resorts across the country, including two casinos in Indiana and one in Pennsylvania.  In 2019, Boyd launched an internal investigation of allegations in a demand letter from counsel that a high-ranking male executive had a non-consensual sexual relationship with a female executive.  According to casino.org, the female executive’s counsel claimed in the demand letter that she was “forced to engage in inappropriate sexual activity” with the male executive.

Boyd’s board of directors formed a special investigative committee after it received the demand letter.  According to findings of regulators, Larson initially denied that he had a sexual relationship with the female executive, but later admitted they had a relationship ten years before.  The committee concluded that the two executives had a sexual relationship, but did not determine whether it was non-consensual.  Larson, the male executive implicated in the demand letter, retired in December 2019. 

Although Boyd viewed the investigation as an internal matter, the IGC found that the casino operator “failed to report material information on a Level 1 licensee with the Commission that could question his suitability for licensure in Indiana.”  IGC stated in its order that “even though the male executive was surrendering his license due to retirement, this material information should have been provided to the Commission, giving the Commission an opportunity to conduct a suitability review” to determine whether he was qualified for a license in the future.

In June 2021, the PGCB fined Boyd $150,000 over the same non-disclosure.  The PGCB concluded that Boyd should have included the investigation and findings in its quarterly reports to the Board.  PGCB also found that Boyd failed disclose the sexual relationship or Larson’s false denials of it when it surrendered his license to the PGCB:

Boyd should have disclosed the allegation and the accused principal’s false denial of the allegation.  They denied the Board the ability to make a determination if the accused principal’s license should be surrendered with or without prejudice.

Boyd’s new GC reported to the PGCB that it had adopted recommendations of the special investigation committee, including:

  • A claw back policy, which allows Boyd to “claw back” unvested equity awards from executives who engage in inappropriate conduct;
  • A policy that requires Boyd to obtain information from all candidates about prior claims of workplace harassment; and
  • Creation of a centralized database for findings of inappropriate conduct in the workplace

There are a number of lessons that can be drawn from the Boyd Gaming findings and fines.  Investigations of C-Suite executives are rarely purely “internal” matters.  Executives owe duties to the board and the owners (including shareholders) of corporations.  If they work for regulated entities, like casinos, financial service firms, or government contractors, they may hold licenses or clearances or owe disclosure obligations to federal or state regulators.  Also, the board members conducting or overseeing investigations have their own set of duties and legal obligations to the corporation and its owners.

It is critical that boards consider these duties and legal obligations, including reporting and disclosure obligations, in conducting and overseeing investigations of executives and licensed employees.  Often, it is necessary to retain independent outside counsel to provide advice to the board or the board committee and/or to conduct the internal investigation.  Board members and counsel involved in investigations should also consider reaching out to regulatory counsel to determine the reporting and notice obligations triggered by the investigation and the results of it.

Bertram LLP is frequently retained by boards and board committees to conduct independent internal investigations of C-Suite executives and to advise them concerning their legal and compliance obligations, including their disclosure, reporting and notice obligations.

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