Company Settles SEC Charges for Filing Materially False Reports and Misleading Investors

An agricultural company settled SEC charges for misleading investors by materially inflating the financial performance of its "Nutrition" business segment, which the company had promoted to investors as a critical driver of future growth.

According to the Order, senior executives directed a series of adjustments to intersegment transactions—specifically between the Nutrition segment and the firm's agricultural and carbohydrate divisions—that were not conducted at arm's length or at market rates as required by the firm's internal accounting policies. These adjustments were made specifically to meet forecasted growth targets and resulted in the firm filing materially false and misleading periodic reports regarding its financial condition and results of operations.

In the settlement agreement, the SEC found that during the relevant period, when the Nutrition segment was at risk of missing its operating profit forecasts, executives pressured finance employees to apply retroactive rebates or price adjustments to agricultural commodities sold between segments. The SEC found that the firm failed to maintain a system of internal accounting controls sufficient to ensure these transactions were recorded accurately, and the firm subsequently had to restate its financial filings for the time period. 

The SEC found the firm violated Securities Act Section 17(a) ("Fraudulent Interstate Transactions"), regarding fraudulent conduct in the offer or sale of securities, and Exchange Act Section 10(b) ("Regulation of the Use of manipulative and deceptive devices") and Rule 10b-5 ("Employment of manipulative and deceptive devices") thereunder, regarding fraud in connection with the purchase or sale of securities. Additionally, the firm violated Exchange Act Section 13(a) ("Periodical and other reports") and Rules 12b-20 ("Additional information"), 13a-1 ("Requirements of annual reports"), 13a-11 ("Current reports on Form 8-K"), and 13a-13 ("Quarterly reports on Form 10-Q") regarding reporting requirements, as well as Exchange Act Sections 13(b)(2)(A) ("Periodical and other reports") and 13(b)(2)(B) regarding the maintenance of accurate books, records, and internal accounting controls.

To settle the charges, the firm agreed to a cease-and-desist order and to pay a $40 million civil money penalty. Additionally, two individual executives agreed to cease-and-desist orders and to pay combined civil penalties, disgorgement, and prejudgment interest totaling approximately $1.1 million, with one executive further agreeing to a three-year bar from serving as an officer or director of a public company.