ADM agreed to pay a $40 million civil penalty, according to the SEC. Former executives Vince Macciocchi and Ray Young settled without admitting or denying the findings. The agency filed a separate complaint in the U.S. District Court for the Northern District of Illinois against former executive Vikram Luthar.
According to the complaint, Luthar 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. The SEC said 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 maneuvers were aimed at making Nutrition appear to hit the 15% to 20% annual operating profit growth that Luthar and other ADM executives projected to investors.
The SEC's settled order finds that Macciocchi and Luthar led the effort to structure adjustments for fiscal years 2021 and 2022, and that Young "negligently approved" improper adjustments for fiscal years 2019 and 2021. The order finds ADM overstated Nutrition's operating profit for fiscal years 2019, 2021, and 2022, as well as for the third quarter of 2019 and all quarters of 2021.
The complaint alleges, and the order finds, that the adjustments rendered ADM's annual and quarterly reports false and misleading because the transactions were inconsistent with the company'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. She added that the agency "credit[s] ADM's cooperation and its efforts to avoid future accounting and disclosure violations."
Macciocchi agreed to pay $404,343 in disgorgement and prejudgment interest and a $125,000 civil penalty, along with a three-year officer and director bar, the SEC said. Young agreed to pay $575,610 in disgorgement and prejudgment interest and a $75,000 civil penalty.
The complaint against Luthar 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 of the federal securities laws; and failing to reimburse ADM for certain executive compensation as required under the Sarbanes-Oxley Act. The SEC is seeking permanent injunctions, an officer and director bar, disgorgement with prejudgment interest, civil penalties, and SOX clawback relief.
The agency said it considered ADM's cooperation and remedial measures in accepting its settlement offer. Those measures included an internal investigation, voluntary reporting of findings to SEC staff, and the implementation of new internal accounting controls around intersegment transactions. The order creates a Fair Fund to distribute the monetary relief to harmed investors.