Archer-Daniels-Midland Company (ADM) agreed to pay a $40 million civil penalty to settle accounting and disclosure fraud charges from the Securities and Exchange Commission, the SEC announced.
The SEC filed the charges against ADM and its former executives, Vince Macciocchi and Ray Young, and a litigated action against its former executive Vikram Luthar. The defendants were accused of materially inflating the performance of a key ADM business segment, Nutrition, which produces ingredients for human and animal food, and which ADM touted to investors as an important driver of the company’s overall growth.
It was alleged that ADM used improper accounting to make the segment’s profits look stronger than they actually were, primarily by shifting profits from other divisions through non‑market “intersegment” sales and other adjustments.
The SEC’s complaint, filed in the U.S. District Court for the Northern District of Illinois, alleges that Luther 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.
These adjustments included retroactive rebates and price changes that were not available to third-party customers and effectively shifted profits from other ADM segments to Nutrition. The goal was to make it appear that Nutrition was achieving the projected 15%–20% annual operating profit growth communicated to investors.
The SEC’s settled order against ADM, Macciocchi, and Young finds that 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. These 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 adjustments resulted in transactions inconsistent with ADM’s representation that intersegment transactions were recorded at amounts “approximating market.” Further, the order finds that ADM overstated Nutrition’s operating profit for fiscal years 2019, 2021, and 2022, the third quarter of 2019, and all quarters in 2021 as a result of the adjustments.
In accepting ADM’s settlement offer, the SEC said it considered the company’s cooperation and significant remedial measures. ADM conducted an internal investigation, voluntarily reported its findings to the staff, and provided the staff with additional analyses from an outside accounting expert. ADM’s remedial measures included implementing new internal accounting controls around intersegment transactions, amending its policies and procedures, and testing the effectiveness of its new controls, among other things.
The order creates a Fair Fund to distribute the ordered 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,” 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.”
Luthar was charged 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. The complaint seeks permanent injunctions, an officer and director bar, disgorgement of ill-gotten gains with prejudgment interest, civil penalties, and reimbursement of certain executive compensation to ADM pursuant to the Sarbanes-Oxley Act.
ADM, Macciocchi, and Young were found to have violated the antifraud, reporting, internal accounting controls, and books and records provisions of the federal securities laws, and Macciocchi and Young were found to have caused certain of ADM’s violations.
Without admitting or denying the findings, ADM, Macciocchi, and Young agreed to cease and desist from committing or causing any violations and any future violations of the relevant provisions of the federal securities laws, and ADM has voluntarily undertaken to cooperate fully with the SEC in the litigation and any other proceedings related to these matters. .ADM agreed to pay a $40 million civil penalty, Macciocchi agreed to pay disgorgement and prejudgment interest totaling $404,343 and a civil penalty of $125,000, and Young agreed to pay disgorgement and prejudgment interest totaling $575,610 and a civil penalty of $75,000. Macciocchi also agreed to a three-year officer and director bar.
The attorneys at Hyman Cotter PC were formerly senior attorneys in the SEC’s Division of Enforcement. We have represented clients in regulatory matters while working at Morgan Stanley and in private practice at some of the world’s largest law firms. Therefore, we understand the complexities that come with being the subject of a regulatory inquiry, and we have the experience to guide and advise you through any type of regulatory investigation. If you are the subject of a regulatory proceeding, contact Hyman Cotter PC at 312-291-4600 or through our online contact form for a free consultation.
