Biotechnology manufacturer Monsanto is scheduled to pay about $80 million to settle charges relating to a coporate rebate program. Three accounting and sales executives will pay penalties ranging from $30,000 to $55,000.
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“Monsanto devised rebate programs that elevated form over substance, which led to the booking of substantial amounts of revenue without the recognition of associated costs”, said Scott W. Friestad, associate director in the SEC’s Division of Enforcement. The SEC didn’t specify the amount by which Monsanto misstated its earnings.
The SEC’s case against Monsanto revolves around a corporate rebate program created to boost sales of Roundup, a popular weed killer.
In agreeing to settle, Monsanto neither admitted nor denied the charges, which include fraud.
“This type of conduct, which fails to recognise expenses associated with rebates for a flagship product in the period in which they occurred, is the latest page from a well-worn playbook of accounting misstatements”. According to that document, Monsanto CEO Hugh Grant and former Monsanto CFO Carl M. Casale also have agreed to pay back the company for “cash incentives and certain stock awards” from fiscal 2009 and 2010. As previously announced in November 2011, following an internal investigation, Monsanto restated its financial statements for fiscal year 2009 through the third quarter of fiscal year 2011. Accounting executives Anthony Hartke and Sara Brunnquell developed and approved talking points for the Monsanto sales force when pitching retailers on the rebate program. Regulators described a process in which Monsanto recorded sales in each of two years but didn’t account for rebates until the following year. In fact, Monsanto only recorded the costs in 2010. Under Sarbanes Oxley, the accounting rules adopted in 2002 in the wake of Enron and Worldcom, the SEC could have gone after that money anyway, though it is less likely to do so when the executive has not been accused of wrongdoing. Under one scheme, Monsanto sales executive Jonathan Nienas arranged payment of $44.5 million in rebates to two of its largest distributors.
The world’s biggest seed company booked revenue from the discount program without properly recognizing all of its costs, the Securities and Exchange Commission (SEC) said in a statement Tuesday. They were recorded as selling, general and administrative expenses, rather than rebates which increased gross profits from Roundup in those countries. Public companies need to have robust systems in place to ensure that all of their transactions are recognised in the correct reporting period’.
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Attorneys for Brunnquell and Hartke did not have any immediate comment.
