International New York Times, FEB. 9, 2016
LIZ MOYER
Monsanto will pay $80 million in penalties to the Securities and Exchange Commission to settle claims that it misstated earnings after failing to properly account for the costs of a sales rebate program for its flagship herbicide product, Roundup.
The S.E.C. said Monsanto, an agribusiness giant based in St. Louis, had insufficient internal controls to properly track millions of dollars in rebates it offered to Roundup retailers and distributors. The rebates were part of a promotion that Monsanto ran after sales of a generic version of the product undercut its business in 2009.
Monsanto booked substantial revenue as a result of the sales promotion from 2009 through 2011, but it did not recognize related costs, which led it to misstate corporate profits over a three-year period.
It is one of the largest accounting-related settlements by the S.E.C. since Mary Jo White took over as chairman of the agency in 2013 with a plan to refocus on corporate accounting abuses as investigations related to the financial crisis were ending.
Accounting cases more than doubled, to 114 through September 2015, from 53 for the same period in 2013. Last June, the S.E.C. struck a $190 million civil settlement with Computer Sciences Corp. and charged eight former employees and executives with manipulating financial results.
“Corporations must be truthful in their earnings releases to investors and have sufficient internal accounting controls in place to prevent misleading statements,” Ms. White said on Tuesday.
Failing to recognize expenses related to rebates “is the latest page from a well-worn playbook of accounting misstatements,” she said.
Monsanto, which is neither admitting nor denying wrongdoing, also agreed to hire a consultant to review its financial reporting of rebate programs for its crop protection business. In a statement, the company said it previously disclosed the investigation and restated its earnings for 2009 through 2011 at the end of 2011.
“The company is pleased to put this matter behind it,” the statement said.
Monsanto’s chief executive, Hugh Grant, reimbursed the company $3,165,852 for cash bonuses and stock awards he received during the period in question, and its former chief financial officer, Carl Casale, returned $728,843 in compensation.
The S.E.C. said it did not find any personal misconduct on either man’s part and would not pursue clawbacks under the Sarbanes-Oxley Act.
In addition, three accounting and sales executives will also pay penalties totaling $185,000, and the accountants agreed to be temporarily suspended from practicing before the S.E.C.
Roundup, one of Monsanto’s most profitable products, began losing market share after competitors undercut its sales with cheaper generic brands. In 2009, Monsanto introduced a rebate program that would help make up for price reductions in the product in subsequent years if retailers and distributors met certain sales goals.
Roughly a third of Monsanto’s Roundup sales that year occurred in the fourth quarter, when the rebate program was introduced. Monsanto delayed reporting the costs of the rebate program until 2010.
A new rebate program was created in 2010, under which Monsanto paid $44.5 million to its two largest distributors. The program was repeated the next year, and Monsanto deferred recording the rebate costs from 2010 into 2011.