ADM agreed to pay a $40 million civil penalty. Former executive Vince Macciocchi agreed to pay $404,343 in disgorgement and prejudgment interest plus a $125,000 penalty, along with a three-year officer and director bar. Former executive Ray Young agreed to pay $575,610 in disgorgement and prejudgment interest plus a $75,000 penalty. The settling parties neither admitted nor denied the SEC's findings, and agreed to cease and desist from committing or causing any future violations.
The SEC's complaint against Luthar, filed in the U.S. District Court for the Northern District of Illinois, alleges he directed "adjustments" to Nutrition's transactions with other ADM business segments when Nutrition was falling short of its operating profit targets for fiscal years 2021 and 2022. According to the SEC, 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.
The agency said the conduct was aimed at making it appear Nutrition was meeting the 15% to 20% per year operating profit growth that Luthar and other ADM executives projected to investors. The SEC's order finds ADM overstated Nutrition's operating profit for fiscal years 2019, 2021, and 2022, the third quarter of 2019, and all quarters in 2021.
The settled order finds Macciocchi and Luthar led efforts to identify and structure adjustments for fiscal years 2021 and 2022, and that Young negligently approved improper adjustments for fiscal years 2019 and 2021. According to the SEC, the adjustments were targeted to specific dollar amounts to hit Nutrition's operating profit goals or mask a shortfall, and were not provided to third parties.
The SEC said the adjustments rendered ADM's annual and quarterly reports false and misleading because the transactions were inconsistent with ADM's representation that intersegment transactions were recorded at amounts "approximating market."
"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. In this matter, we credit ADM's cooperation and its efforts to avoid future accounting and disclosure violations."
The SEC said it considered ADM's cooperation and remedial measures in accepting the settlement. The company conducted an internal investigation, voluntarily reported its findings to the staff, and provided additional analyses from an outside accounting expert. ADM also implemented new internal accounting controls around intersegment transactions and tested their effectiveness.
The order creates a Fair Fund to distribute the monetary relief to investors harmed by the violations. The Luthar complaint charges him with violating the antifraud provisions of the federal securities laws, aiding and abetting ADM's violations of the antifraud, reporting, books and records, and internal accounting control provisions, and failing to reimburse ADM for certain executive compensation. The complaint seeks permanent injunctions, an officer and director bar, disgorgement with prejudgment interest, civil penalties, and Sarbanes-Oxley clawback of executive compensation.
The SEC's order finds ADM, Macciocchi, and Young violated the antifraud, reporting, internal accounting controls, and books and records provisions, and that Macciocchi and Young caused certain of ADM's violations.