SEC Settles Accounting Violations Charges against Agribusiness
The SEC settled charges with a multinational agricultural and biochemical business ("agribusiness") that it "violated accounting rules and misstated company earnings as it pertained to its flagship product." The SEC simultaneously entered into settlement agreements with three of the agribusiness' accounting and sales executives for related violations. In addition to paying an $80 million penalty, the agribusiness agreed to retain an "independent compliance consultant" to assess the effectiveness of the company's internal controls, financial reporting policies and compliance program.
Specifically, the SEC Order found that the agribusiness:
-
maintained "insufficient internal accounting controls to properly account for millions of dollars in rebates offered to retailers and distributers . . . after generic competition had undercut its prices and resulted in a significant loss of market share for the company"; and
-
"booked substantial amounts of revenue resulting from sales incentivized by the rebate programs, but failed to recognize all of the related program costs at the same time"; consequently,
-
it "materially misstated its consolidated earnings in corporate filings during a three-year period."
SEC Chair Mary Jo White remarked that "[f]inancial reporting and disclosure cases continue to be a high priority for the [SEC] and these charges show that corporations must be truthful in their earnings releases to investors and have sufficient internal accounting controls in place to prevent misleading statements. This type of conduct . . . is the latest page from a well-worn playbook of accounting misstatements."
The SEC's press release noted that (i) the SEC found no personal misconduct by the company's CEO or CFO, and (ii) because the executives reimbursed the company in the amounts of $3,165,852 and $728,843, respectively, for cash bonuses and stock awards that they received during the period for which the company made the misstatements, the SEC did not pursue a clawback action under Section 304 of the Sarbanes-Oxley Act.