The Securities and Exchange Commission charged food processing company Archer-Daniels-Midland Company and its three former executives with accounting and disclosure fraud.
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The SEC litigated action against former executive Vikram Luthar, alleging that he materially inflated the performance of ADM’s nutrition segment, which the company touted to investors as a key driver of growth. Luthar made “adjustments” to nutrition’s transactions with the goal of masking the segment’s operating profit target shortfalls for fiscal years 2021 add 2022. The adjustments included retroactive rebates and price changes to third-party customers that were essentially one-sided transfers of operating profi
The SEC also settled an order against ADM, Vince Macciocchi and Ray Young, finding that the two former executives made similar adjustments in 2021 and 2022, and that Young negligently approved improper adjustments in 2019 and 2021.
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ADM cooperated and undertook significant remedial measures, which the SEC considered in accepting its settlement offer. Specifically, the company conducted an internal investigation, voluntarily reported its findings to the staff and provided staff with additional analyses from an outside accounting expert. It also implemented new internal accounting controls around intersegment transactions, amended its policies and procedures, and tested the effectiveness of its new controls, among other measures.
The order creates a Fair Fund to distribute monetary relief to investors harmed by the violations.
“Transparent and honest disclosure are key to maintaining market integrity, so when ADM misled its investors, the SEC stepped in to protect them and the market,” Judge Margaret Ryan, director of the SEC’s division of enforcement, said in a statement. “The SEC is steadfast in its commitment to rooting out fraud and holding accountable wrongdoers, while also engaging market participants constructively to ensure the right outcomes are achieved in a timely and fair manner. In this matter, we credit ADM’s cooperation and its efforts to avoid future accounting and disclosure violations.”
The SEC found that the adjustments in ADM’s annual and quarterly reports were false and misleading, and that ADM overstated its nutrition segment’s operating profit for fiscal years 2019, 2021 and 2022.
The complaint against Luthar, filed in the U.S. District Court for the Northern District of Illinois, charges him with violating antifraud provisions, aiding and abetting ADM’s violations of antifraud, reporting, books and records, and internal accounting control provisions, and failing to reimburse ADM for certain executive compensation.
The SEC seeks permanent injunctions against Luthar, as well as an officer and director bar, disgorgement of ill-gotten gains with prejudgment interest, civil penalties and a reimbursement of certain executive compensation to ADM.
The order against ADM, Macciocchi and Young finds they violated antifraud, reporting, internal accounting control, and books and records provisions, and that Macciocchi and Young caused certain violations of ADM.
Without admitting or denying the findings, ADM, Macciocchi and Young agreed to cease and desist from violating the relevant provisions of the federal securities laws, and ADM voluntarily agreed to cooperate with the SEC in the litigation and proceedings. ADM agreed to pay a $40 million civil penalty, Macchiocchi agreed to pay disgorgement and prejudgment interest totalling $404,343 and a $125,000 civil penalty, and Young agreed to pay disgorgement and prejudgment interest totalling $575,610 and a $75,000 civil penalty. Macciocchi also agreed to a three-year officer and director bar.
