The Kraft Heinz Company, one of the world’s biggest food and beverage companies, has agreed to pay a civil penalty of $62 million to settle charges related to an alleged scheme that resulted in restatement of several years of financial reporting.
In a news release Friday, the Securities and Exchange Commission (SEC) described certain accounting misdeeds that resulted in Kraft Heinz reporting inflated adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), an important performance metric for investors.
From the last quarter of 2015 to the end of 2018, Kraft Heinz allegedly engaged in misconduct that included recognizing unearned discounts from suppliers and maintaining false and misleading supplier contracts. These moves improperly slashed the company's cost of goods sold and purportedly yielded "cost savings,” SEC said.
In June 2019, after SEC began its investigation, Kraft Heinz restated its financials— correcting $208 million in improperly recognized cost savings arising out of nearly 300 transactions, SEC said.
Without admitting to or denying SEC's findings, Kraft Heinz consented to cease and desist from future violations and pay a civil penalty of $62 million.
"Today's action demonstrates that no matter how complex and far-reaching the financial misconduct, we will vigorously pursue wrongdoers because that’s what investor protection requires,” said Gurbir Grewal, director of SEC's Division of Enforcement, in the news release.
Eduardo Pelleissone, former chief operating officer of Kraft Heinz, consented to cease and desist from future violations and pay a civil penalty of $300,000 as well as disgorgement and prejudgment interest of $14,211.31, according to the news release.
Kraft Heinz’s former chief procurement officer, Klaus Hofmann, consented to a final judgment permanently enjoining him from future violations, SEC said. The settlement, which is subject to court approval, also orders Hofmann to pay a civil penalty of $100,000 and bars him from serving as an officer or director of a public company for five years, the agency added.
Hofmann and Pelleissone could not be reached for comment, but Kraft Heinz issued a statement on the SEC settlement.
“We have fully cooperated with the SEC throughout its investigation and took prompt and extensive remedial action and proactive steps to improve our internal policies, procedures, and internal controls over financial reporting,” Kathy Krenger, global chief communications officer of Kraft Heinz, said. “The internal control weaknesses we identified and disclosed in 2019 were fully remediated in 2020. Kraft Heinz is much stronger today because of the actions we took and embedded into our company culture.”