The SEC felt that Diamond Foods was getting a little nutty with falsifying company statements and has filed charges as a result against two Diamond Foods executives as well as the company itself.
According to an SEC statement, former Diamond financial officer Steven Neil instructed his team to underreport money paid to walnut growers by delaying the record of these payments to later fiscal periods. In doing so, Diamond was able to report fraudulently high net income statements for the fiscal years 2010 and 2011.
“Diamond Foods misled investors on Main Street to believe that the company was consistently beating earnings estimates on Wall Street,” said Jina L. Choi, director of the SEC’s San Francisco Regional Office. “Corporate officers cannot manipulate fiscal numbers to create a false impression of consistent earnings growth.”
The shift in Diamond strategy came after a sharp increase in walnut prices at the beginning of 2010. Rather than directly record the increase costs on the books, however, Neil instructed his team to “consider the payments as advances on crops that had not yet been delivered.” This allowed Diamond Foods to trade as high as $90 per share in 2011. After the company re-adjusted its earnings in 2012, however, its stock fell to $17 a share.
In addition to Neil, the SEC also charged former company CEO Michael Mendes for his failure to adequately oversee the financial team. According to the report, the SEC alleges Mendes should have known about the financial improprieties and willfully misled investors with reports that contained the falsified information.
Diamond Foods has already settled with the SEC for $5 million. Mendes has also settled with the SEC for $125,000 in direct penalties, as well as more than $4 million in bonuses and other benefits that he had already forfeited. The case against Neil is still pending.
For more the SEC’s actions, check out these InsideCounsel articles: