The Securities and Exchange Commission has charged Marrone Bio Innovations, a pesticide company, and its former chief operating officer, with inflating financial results to meet projections it would double revenues in its first year as a public company.
Marrone Bio agreed to pay a $1.75 million penalty to settle the SEC’s charges. The SEC alleges that former COO Hector M. Absi Jr. hid various sales concessions offered to customers from Marrone Bio’s finance personnel and independent auditor, leading the Davis, Calif.-based company to improperly recognize revenue on sales.
Absi allegedly profited from the fraud. He resigned in August 2014 shortly before the alleged fraud came to light and the company’s stock price plunged more than 44 percent. In a parallel action, the U.S Attorney’s Office for the Eastern District of California announced criminal charges against Absi on Wednesday.
“We allege that Marrone Bio misled investors to make itself look like a fast-growing new public company,” said Jina L. Choi, director of the SEC’s San Francisco Regional Office, in a statement Wednesday. “Public companies and their officers should know better that taking shortcuts to recognize revenue in the near term is harmful to investors and can be damaging to a company’s long-term success.”
According to the SEC’s complaint, Marrone Bio restated its results for fiscal 2013 and the first half of fiscal 2014 last November, reversing approximately $2 million of previously reported revenue. Absi had previously inflated Marrone Bio’s revenues by offering distributors “inventory protection,” a concession that allowed distributors to return unsold product. Absi allegedly also inflated Marrone Bio’s revenue by directing his subordinates to obtain false sales and shipping documents and intentionally ship the wrong product to book sales.
The SEC contends that Absi abused Marrone Bio’s expense reporting system to pay for personal items, including vacations, home furnishings, and professionally installed Christmas lights for his home. The complaint said Absi falsified his bank and credit card statements to make it appear as though he had incurred the expenses for legitimate business purposes. Absi allegedly also personally profited from his scheme, receiving more than $350,000 in bonuses, stock sale proceeds, and illegitimate expense reimbursements.
The SEC has also instituted a settled administrative proceeding against Marrone Bio’s former customer relations manager Julieta Favela Barcenas for violations of the books and records provisions of the federal securities laws. Favela entered into a cooperation agreement to assist in the SEC’s investigation and ongoing litigation against Absi.
Marrone Bio CEO Pamela G. Marrone has reimbursed the company $15,234 and former CFO Donald J. Glidewell will reimburse the company $11,789 for incentive-based compensation they received following the filing of Marrone Bio’s misstated financial statements, as required by the Sarbanes-Oxley Act. They were not charged with any misconduct.
In agreeing to the settlement, Marrone Bio neither admitted nor denied the SEC’s allegations. “We have determined that resolving this matter serves the best interests of the company and its stockholders,” Marrone said in a statement Wednesday. “With this behind us, we can focus on our business going forward.”
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