The Kraft Heinz Company and two former executives have agreed to pay more than $62 million to settle charges they falsified supplier contracts to achieve cost savings in a multi-year accounting scheme, the US securities regulator has said.
The food company engaged in an array of accounting misconduct from the last quarter of 2015 to the end of 2018 during which it improperly inflated key earnings for investors, the Securities and Exchange Commission (SEC) said on Friday (3 September).
'Cost Savings Gap'
The alleged misconduct began as a result of a "cost savings gap" leading up to Heinz's 2015 merger with Kraft and continued for years amid pressure to make good on promises the new company would "deliver on certain cost savings," according to SEC documents.
Kraft restated its financials in June 2019 after the launch of an SEC probe, correcting $208 million in improperly recognised cost savings from nearly 300 transactions, the regulator said.
Kraft, which did not admit or deny the SEC's findings, said in a statement that it fully cooperated with the SEC's investigation and has taken "remedial action and proactive steps" to boost its policies and controls for financial reporting.
The Chicago-based company agreed to pay a $62 million civil penalty and not commit future violations as part of its agreement with the SEC.
Kraft recorded the penalty in the second quarter of 2021, the statement said.
Eduardo Pelleissone former chief operating officer, who was accused of negligence-based anti-fraud and other controls violations, has agreed to pay a penalty of $300,000 and another $14,000 in disgorgement.
Klaus Hofmann, former chief procurement officer Klaus Hofmann has agreed to pay $100,000 and was barred from serving as a public company officer or director for five years in a settlement that is pending court approval.
Neither executive admitted or denied the SEC's findings. Lawyers for both did not respond immediately to requests for comment.
Warren Buffett's Berkshire Hathaway Inc owns about 26% of Kraft Heinz. Prices of Kraft shares were little-changed on Friday.
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