Monsanto whistleblower awarded nearly $22.5m in SEC probeMonsanto whistleblower awarded nearly $22.5m in SEC probe
Second-largest corporate payment made under SEC's whistleblower bounty program.
August 31, 2016
The Securities & Exchange Commission (SEC) this week awarded more than $22 million to a whistleblower whose detailed tip and extensive assistance helped the agency halt a “well-hidden fraud” at Monsanto Co. The award was part of an $80 million penalty imposed for alleged accounting violations and improper financial reporting.
The $22 million-plus award is the second-largest total SEC has awarded a whistleblower. The largest, $30 million, was awarded in 2014 in an unrelated case.
“Company employees are in unique positions behind the scenes to unravel complex or deeply buried wrongdoing. Without this whistleblower’s courage, information and assistance, it would have been extremely difficult for law enforcement to discover this securities fraud on its own,” Jane Norberg, acting chief of the SEC Office of the Whistleblower, said.
At more than 28% of Monsanto’s total $80 million penalty, the award was nearly the maximum 30% allowed under the bounty program for payments higher than $1 million. To date, the agency has awarded more than $107 million to 33 whistleblowers.
Monsanto accepted the $80 million penalty in February to resolve charges that it violated generally accepted accounting practice rules and misstated corporate earnings relating to its flagship weed killer Roundup.
In an investigation prompted by the company whistleblower, SEC found that Monsanto had failed to account for tens of millions of dollars in rebates given to retailers and distributors as incentives to drive sales of Roundup in the face of intense discounting by rivals. SEC said Monsanto’s “material” overstatement of earnings for three years misled investors as to the herbicide’s true sales performance.
In addition to the financial penalties, Monsanto agreed to improve its accounting controls and retain an independent compliance monitor to review its accounting procedures. Three accounting and sales executives at Monsanto were also charged by SEC for contributing to the financial improprieties; all three previously struck their own settlements with the agency, including payment of civil penalties.
“We are extremely pleased with the award granted to our client and especially with the SEC’s persistence in undertaking a highly complex investigation of accounting weaknesses at Monsanto, which aggressively fought the case all along,” said attorney Stuart Meissner, who represented the company whistleblower. He noted that his client, a former Monsanto financial executive, only shared his concerns with SEC after first trying to correct the issues internally.
Although the case took several years, Meissner said the large award will hopefully encourage other public company insiders who are aware of financial manipulations – or any other securities law violations – to come forward to help protect investors. “Internal gatekeepers like our client represent the first line of defense against financial wrongdoing at companies – in this case, unlawful gamesmanship between Monsanto and its outside auditor to disguise significant sales weakness of a signature product like Roundup.”
Meissner raised concerns about the role of outside auditors. “We hope the agency will probe Monsanto’s outside auditor, Deloitte, for the role we believe it played in enabling the company to overstate earnings and issue misleading financial statements – not only once but twice,” he said.
Meissner said he believes there was an initial misstatement by Monsanto and a subsequent restatement, which he said is actually the bigger issue of the two.
“When auditors are allowed to audit their own mistakes, it is difficult for them to be independent and objective, and when independence is impaired, the professional skepticism needed to recognize and flush out improprieties by management is not present," he said. "Professional skepticism of the auditor is the last line of defense for a management team that may have a clear bias in reporting positive results.”
To this day, Meissner believes Monsanto investors still do not have accurate financial statements for the periods involved in the case. “If a (truly) independent auditor not associated with the original financials had been appointed to audit the restated financials, I believe there would be a higher likelihood that investors would know the true performance of the company and be in a better position to make fully informed decisions,” he said.
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