ADM agreed to pay a $40 million civil penalty to settle SEC allegations that it materially overstated the operating profit of its Nutrition segment for fiscal years 2019, 2021, and 2022. Former executives Vince Macciocchi and Ray Young also settled, paying combined disgorgement and penalties totaling $1.18 million, while the SEC filed a litigated complaint against former executive Vikram Luthar in the Northern District of Illinois.
According to the SEC's order and complaint, Luthar directed "adjustments" to transactions between Nutrition and other ADM business segments when the unit fell short of operating profit targets in fiscal years 2021 and 2022. "The adjustments included retroactive rebates and price changes not customarily available to ADM's third-party customers that were essentially one-sided transfers of operating profit to Nutrition, with the goal of making it appear that Nutrition was meeting the 15% to 20% per year operating profit growth" that executives had projected to investors, the complaint alleges.
Under the settlement, ADM must cease and desist from future violations and has agreed to cooperate fully with the Commission's ongoing litigation. Macciocchi, who the SEC found led efforts with Luthar to structure the improper adjustments, agreed to a three-year officer and director bar in addition to paying $404,343 in disgorgement and prejudgment interest plus a $125,000 penalty. Young, who negligently approved improper adjustments, will pay $575,610 in disgorgement and interest plus a $75,000 penalty.
The enforcement action highlights the SEC's continued focus on earnings management schemes and internal controls failures at public companies. The violations rendered ADM's annual and quarterly reports false and misleading because the adjustments were inconsistent with the company's representation that intersegment transactions were recorded at amounts "approximating market," according to the order.
"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," said Judge Margaret A. Ryan, Director of the SEC's Division of Enforcement. "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."
The SEC credited ADM's cooperation and remedial measures in accepting the settlement, noting the company conducted an internal investigation, voluntarily reported findings to staff, and provided additional analyses from an outside accounting expert. ADM also implemented new internal accounting controls around intersegment transactions and amended its policies and procedures.
The order establishes a Fair Fund to distribute the monetary relief to harmed investors. Meanwhile, Luthar faces charges including violating antifraud provisions, aiding and abetting ADM's violations, and failing to reimburse executive compensation as required under Sarbanes-Oxley. The SEC seeks permanent injunctions, an officer and director bar, disgorgement, civil penalties, and executive compensation reimbursement against him.