Company Fined for Misleading Statements on Sales Growth
A consumer goods company and its former CEO settled charges with the SEC for making misleading statements to investors by using non-GAAP measures on "core growth" and "core sales" in earnings reports.
In an Order, the SEC stated that the company claimed that a core sales figure was a more "consistent basis" for measuring performance trends because it adjusted "net sales to exclude the impacts of acquisitions, planned and completed divestitures, and foreign currency change." The SEC found that in response to "disappointing sales," the company’s former CEO approved plans to "pull forward sales from future quarters," reduce accruals related to customer promotions and reclassify certain shipping credits given to customers as part of the company's effort to increase core sales growth. The SEC said that the company did not disclose in its statements to investors the actions it took, which were "unrelated to its actual underlying sales trends" and which allowed it to show a higher cores sales growth rate.
As a result, the SEC found violations of Securities Act Sections 17(a)(2) and (3) ("Fraudulent Interstate Transactions"); Exchange Act Sections 13(a), 13(b)(2)(A) and (B) and 13(b)(5) ("Periodical and other reports"); Exchange Act Rules 12b-20 ("Additional information"), 13a-1 ("Requirements of annual reports"), 13a-11 ("Current reports on Form 8-K"), 13a-13 ("Quarterly reports on Form 10-Q"), 13a-14 ("Certification of disclosure in annual and quarterly reports"), 13a-15(a) ("Controls and procedures"), 13b2-1 ("Falsification of accounting records"), 13b2-2 ("Representations and conduct in connection with the preparation of required reports and documents") and Rule 100(b) of Regulation G ("General rules regarding disclosure of non-GAAP financial measures").
To settle the charges, the company and former CEO agreed to (i) cease and desist from further regulatory violations and (ii) pay a civil money penalty of $12,500,000 by the company and $100,000 by the former CEO.