Monsanto to pay SEC $80 Million to settle charges of improper accounting

Monsanto was accused of booking millions of revenue after launching a rebate program for one of its popular herbicide products, Roundup, but not properly accounting for the cost of the promotion. But it did find that three accounting and sales executives were at fault, each of whom were forced to pay a penalty of between $30,000 and $55,000.

Monsanto’s Roundup rebate program was initially started in 2009, as generic versions of the herbicide started capturing market share away from the corporation and the SEC started investigating the company in 2011. It ultimately booked a sizeable amount of revenue, but then failed to recognize the costs of the rebate programs on its books. The SEC didn’t specify the amount by which Monsanto misstated its earnings.

Monsanto began the accounting shenanigans in 2009, when Roundup was facing intense competition.

Though settling the charges, Monsanto did not admit or deny the SEC allegations that it broke the law, according to the regulator’s press release.

“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”. Regulators described a process in which Monsanto recorded sales in each of two years but didn’t account for rebates until the following year. However, Monsanto already restated its financials for fiscal 2009 through 2011’s third quarter after an internal investigation into the sales rebate program and its accounting.

The company also offered rebates to distributors that hit agreed-upon volume targets that year, but then didn’t record those costs until 2010.

While the incentive led to higher sales, Monsanto delayed recording the costs associated with it until 2010, the agency said. 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 recognized in the correct reporting report”, said Scott Friestad, the SEC’s associate director for the enforcement division. The SEC’s order permits Brunnquell to apply for reinstatement after two years, and Hartke is permitted to apply for reinstatement after one year.

Furthermore, CEO Hugh Grant and former CFO Carl Casale have also paid back about $3 million and $700,000 in bonuses, respectively, tied to Monsanto’s financial performance during those three years. Therefore, it wasn’t necessary for the agency to pursue a clawback action under the Sarbanes-Oxley Act.