Monsanto Company has agreed to pay $80 million to settle SEC charges that the company violated accounting rules and misstated its earnings. The violations stem from rebate programs Monsanto offered to distributors and retailers of Roundup, Monsanto’s profitable weed killer product. Three company executives have also agreed to pay fines to settle charges against them (In the Matter of Monsanto Company,Release No. 33-10037, February 9, 2016).
Accounting violations. Monsanto is alleged to have improperly accounted for millions of dollars of rebates offered to Roundup distributors and retailers, according to an SEC press release. Monsanto is also alleged to have had insufficient internal accounting controls to properly account for the rebates, according to a press release.
As a result, the SEC said, Monsanto materially misstated its consolidated earnings, and its revenues and earnings for its Roundup business lines, in its periodic reports filed with the Commission for fiscal years 2009, 2010, and 2011.
Rebate programs. After its patent on Roundup expired in 2000, Monsanto faced generic competition that undercut its prices and resulted in a significant loss of market share for the company. In 2009, Monsanto’s sales force told U.S. retailers that they would be eligible to participate in a new rebate program in 2010 if they maximized their Roundup purchases in the fourth quarter of 2009, according to the SEC. Company accountants knew or should have known that Generally Accepted Accounting Principles (GAAP) required the company to record in 2009 a portion of its costs related to the rebate program. Monsanto delayed recording costs of the program until 2010. In addition, Monsanto offered rebates to distributors who met volume targets. Late in the year, however, Monsanto reversed approximately $57 million of rebate costs that had been accrued under the agreements because certain distributors did not achieve their volume targets.
Under a new program, Monsanto paid $44 million in rebates to its two largest distributors as part of side agreements in which they were promised late in 2009 that they would be paid the maximum rebate amounts regardless of target performance.
Because the side agreements were reached in 2009, Monsanto was required under GAAP to record the rebates in 2009, according to the SEC. Monsanto repeated the program and improperly accounted for $48 million in rebate costs in 2011 that should have been recorded in 2010. Monsanto also allegedly improperly accounted for rebates in 2010 and 2011 in Canada, Germany and France, according to the SEC.
Monsanto remedial efforts. The SEC said that in determining to accept Monsanto’s Offer of Settlement, it considered remedial acts undertaken by Monsanto and cooperation afforded the SEC staff in connection with its investigation. Monsanto also agreed to retain an independent ethics and compliance consultant.
Monsanto executives settle charges. In addition to the company, accounting executives Sara Brunnquell and Anthony Hartke, along with former sales executive Jonathan Nienas consented to settle charges, without admitting or denying the findings, that they violated Rule 13b2-1 and caused Monsanto’s violations of various provisions. Nienas also was found to have violated Exchange Act Section 13(b)(5).
Brunnquell will pay a fine of $55,000, Nienas will pay $50,000, while Nienas was assessed a penalty of $30,000. Brunnquell and Hartke will be suspended from appearing and practicing before the SEC as accountants. That suspension includes not participating in the financial reporting or audits of public companies.
The release is No. 33-10037.
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