Wednesday, September 8, 2021

Kraft Heinz and executives fined for fraud

The Kraft Heinz Co. — parent of Oscar Mayer and Lunchables brands, among others — will pay the United States Securities and Exchange Commission $62 million to settle charges related to what the agency said was a year-long accounting scheme that inflated the company’s cost savings and prompted the restatement of several years of financial reporting.

Former chief operating officer Eduardo Pelleissone was fined $14,211.31 and former chief procurement officer Klaus Hofmann was fined $100,000.

“According to the SEC's order, from the last quarter of 2015 to the end of 2018, Kraft engaged in various types of accounting misconduct, including recognizing unearned discounts from suppliers and maintaining false and misleading supplier contracts, which improperly reduced the company's cost of goods sold and allegedly achieved ‘cost savings,’” a news release from the commission said. Kraft, in turn, touted these purported savings to the market, which were widely covered by financial analysts.

In June 2019, after the SEC investigation commenced, Kraft restated its financials, correcting a total of $208 million in improperly-recognized cost savings arising out of nearly 300 transactions.

Without admitting or denying the SEC's findings as to them, Kraft consented to cease and desist from future violations and pay a civil penalty of $62 million, whereas Pelleissone consented to cease and desist from future violations, pay disgorgement and prejudgment interest of $14,211.31, and pay a civil penalty of $300,000. 

And without admitting or denying the SEC's allegations, Hofmann consented to a final judgment permanently enjoining him from future violations, ordering him to pay a civil penalty of $100,000, and barring him from serving as an officer or director of a public company for five years. The settlement with Hofmann is subject to court approval.

Kraft Heinz's largest shareholder is Warren Buffet of Berkshire Hathaway with 26 per cent of the shares.

Kraft Heinz is the third-largest food and beverage company in the United States.