FBI intensifies probe into ADM's accounting practices

Chris Prentice reported for Reuters on an escalation of the ongoing FBI investigation into Archer-Daniels-Midland (ADM) that has taken a new turn with the issuance of grand jury subpoenas to current and former employees. This development, part of an expanding criminal probe into ADM's accounting practices, coincides with a class action lawsuit filed against the company by Bronstein, Gewirtz & Grossman LLC.

The focus of the FBI's investigation, conducted by the U.S. Attorney's Office for the Southern District of New York (SDNY), centers on ADM's pricing practices and sales from its commodities units to the Nutrition division. The legal scrutiny comes amid revelations about the disproportionate influence of the Nutrition division on ADM's executive compensation, despite it accounting for less than 10% of ADM's revenue.

Class action lawsuit highlights executive compensation issues

In 2020 and 2021, ADM's board substantially linked a portion of senior executives' stock award payouts to the growth in profitability of the Nutrition segment. The success in achieving these targets resulted in executives receiving shares collectively worth over $70 million. The lawsuit alleges that ADM made misleading statements and failed to disclose crucial information about the Nutrition segment's performance and accounting practices.

ADM's executives, in line with practices at many large companies, receive a significant portion of their compensation in stock awards, contingent on specific performance metrics. In a pivotal change in 2020, ADM's board shifted these metrics to focus on the average operating profit growth in the Nutrition segment. Executives were set to receive target payouts if this growth exceeded 10%, with the potential to double their shares if it reached 20%.

Market impact from investigation and legal challenges

The investigation's impact on ADM has been severe, with revelations about the CFO's suspension and the probe into the Nutrition unit's accounting practices caused a major sell-off in ADM's shares and a substantial loss in market value.

The subpoenas, delivered to recipients in the Decatur, Illinois, area where ADM has significant operations, demand production of documents or testimony. They particularly seek details on transactions and goods transferred between ADM's divisions, focusing on below-cost sales from various units to the Nutrition division.

ADM has not commented on the investigation or the lawsuit.