Among recent enforcement actions, the Department of Labor oversaw the restoration of nearly $2 million in 401(k) benefits to the employees of Lange Trucking Inc., a contractor with the U.S. Postal Service.
In addition, the SEC charged Diamond Foods for boosting earnings growth via an accounting scheme to inflate the price of walnuts.
DOL Sees Nearly $2 Million Restored to U.S. Postal Contractors
After an investigation by the Wage and Hour Division of the Department of Labor, Lange Trucking Inc. was on the hook for nearly $2 million in unpaid 401(k) contributions for its employees.
Lange, which had a contract with the U.S. Postal Service that employed 515 drivers, had failed to make the contributions — and had been previously investigated several times by Wage and Hour. It was acquired, subsequent to its violations, by Eagan, Minn.-based Hoovestal Inc., which voluntarily agreed to provide the bulk of the missing benefit contributions — $1.48 million — while Lange itself agreed to provide $500,000.
The company, along with its president, William A. Langenhuizen; vice president, William H. Langenhuizen; secretary-treasurer, Antoinette Langenhuizen; vice president, Robert Langehuizen; and vice president of finance, Lisa Kulak, have been debarred from eligibility for further service contracts with any U.S. government agency for three years for their failure to pay drivers required fringe benefits.
Hoovestal, on the other hand, not only cooperated fully with the Wage and Hour Division during its investigation, but has also corrected recordkeeping procedures, overhauled the plan to ensure timely payments into the plan going forward, posted wage determinations at the work site and made information about the contracts accessible to employees.
SEC Fines Diamond Foods $5 Million for Falsifying Nut Prices
San Francisco-based Diamond Foods and two former executives found themselves charged by the SEC with falsifying the cost of walnuts so that the company could boost earnings and meet analyst estimates. The company has agreed to pay $5 million to settle the charges.
According to the SEC, the price of walnuts escalated sharply in 2010. If Diamond wanted to keep its growers, it had to pay them higher prices, but if the company did that, it would cut the net income it reported publicly.
Diamond's then-chief financial officer Steven Neil, who was under pressure to meet or beat Wall Street analysts' earnings estimates, came up with a way to change all that. He directed that those higher payments to walnut growers not be reported immediately, but be delayed so that he could manage earnings in the financial statements.
The way Neil managed it was to come up with two special payments to please Diamond's walnut growers and bring the total yearly amounts paid to growers closer to market prices. Then he left off parts of those payments from the company's year-end financial statements, instead instructing his finance team to consider the payments as advances on crops that had not yet been delivered.
That meant the company was able to manipulate walnut costs so that it hit quarterly earnings per share (EPS) targets and beat analyst estimates, even going so far as, in Q2 2010, broadcasting its record of "Twelve Consecutive Quarters of Outperformance" in the EPS reports used in investor presentations.
Neil, who personally benefited from the maneuvers via cash bonuses and other compensation that were based on the false results, also lied to the firm's independent auditors about the payments' unusual accounting treatment, the SEC said. Also charged was the company's former CEO, Michael Mendes, who the SEC said should have known what Neil was up to and failed to come clean with auditors about what he knew about the walnut payments.
As a result of his manipulations, Diamond was able to report higher net income and inflated earnings that beat analyst expectations for fiscal quarters in 2010 and 2011. However, once the company restated its financial results in November 2012 to indicate the actual cost of the walnuts it had purchased, its stock price fell from its 2011 high of $90 to only $17 per share.
Mendes has also agreed to settle the charges against him, paying a $125,000 penalty to settle the charges without admitting or denying the allegations and having already returned or forfeited more than $4 million in bonuses and other benefits he received during the time of the company's fraudulent financial reporting. However, litigation continues against Neil.
SEC Announces Settlements in Penny Stock Shell Packaging Scheme
The SEC has announced nearly $300,000 in settlements against a Virginia-based "shell packaging" company and its CEO who were charged with facilitating a penny stock scheme as well as a Bronx, N.Y.-based stock promoter who rprofited from the fraud.
According to the SEC, Virginia-based Belmont Partners LLC and Joseph Meuse, its CEO, identify and sell public shell companies for use in reverse mergers. Late in 2011, the agency charged both with aiding and abetting a New York-based company that fraudulently issued and sold unregistered shares of its common stock.
In the case, the SEC separately named Thomas Russo, who co-owned a stock promotion service called TheStockProphet.com, as a relief defendant as a means of recovering ill-gotten gains in his possession as a result of his business partner's participation in the scheme.
