Scandal at Kraft Heinz: Top Executives Charged with Accounting Misconduct
Recently, the SEC announced charges and a settlement against Kraft Heinz following an investigation that began in 2019. The financial giant is set to pay 62 million USD in the settlement.
The SEC claims Kraft Heinz engaged in various accounting misconducts from the last quarter of 2015 until the end of 2018, including falsifying supplier contracts to gain unearned discounts. This misconduct ultimately harmed the company, causing financial losses for investors and analysts.
As a consequence, Kraft Heinz was forced to revise its financial statements for 2016 and 2017 in 2019.
According to the SEC, then-COO Eduardo Pelleissone (now charged for alleged misconduct) and former Chief Procurement Officer Klaus Hofmann were responsible for approximately 59 misleading supplier and procurement transactions. Hofmann was also personally charged with alleged misconduct, resulting in fines of 300,000 USD for Pelleissone and 100,000 USD for Hofmann. Hofmann faces a five-year ban from holding leading executive positions or directorships.
"Investors rely on the accurate and truthful disclosure of public companies, including financial information," stated Gurbir S. Grewal, Executive Director of the SEC Enforcement Division, on Friday.
Kraft has not admitted or denied the charges in the settlement.
Kathy Krenger, Global Chief Communications Officer at Kraft Heinz, stated to CNN Business, "During the entire investigation, we have cooperated fully with the SEC and promptly took comprehensive corrective actions and proactive measures to improve our internal policies, procedures, and controls for financial reporting."
The company went on to explain that the effects of these misleading transactions on its earnings in each reporting period were no more than 1%, and that all internal control weaknesses discovered during its 2019 investigation were fully resolved by 2020.
In the wake of this scandal, the responsible parties at Kraft Heinz wrote off 15 billion USD in the value of Kraft and Oscar Mayer units, declared a loss of 12.6 billion USD in the fourth quarter of 2018, and cut dividends by 36%.
Former Kraft CEO Bernardo Hees resigned in 2019, around five months after the accounting scandal was exposed. Miguel Patricio took over the position in July of the same year and remains CEO to this day.
Further Reading:
According to an internal investigation following the SEC's probe in 2019, Kraft Heinz had to revise its financial results for 2016 and 2017.
The SEC accused Kraft Heinz of accountancy misconduct from Q4 2015 to the end of 2018, including falsifying supplier contracts to obtain unearned discounts that ultimately impacted the company's financial position. Some of these losses were due to Kraft Heinz's deteriorating financial situation, which was a result of the aforementioned accountancy misconduct.
Source:
Enrichment Insights:
- The SEC alleged that Kraft Heinz's former COO, Eduardo Pelleissone, was given warning signs of expense manipulation but did not take action, instead pushing the procurement division to meet unrealistic savings targets and approving the financial statements despite knowing about the issues.
- Kraft Heinz's former CPO, Klaus Hofmann, was accused of approving improper contracts with suppliers that included unearned discounts and providing misleading reports about nearly 300 contracts.
- The SEC also found that the company's 2016 and 2017 financial results were overstated due to unearned discounts and misleading reports, leading to a restatement of $208 million in improper cost savings.
