General Mills Inc. announced late last week that the Securities and Exchange Commission has terminated its investigation of the cereal company’s sales practices and related accounting.
The SEC staff — which in February 2004 issued a Wells notice covering General Mills, chief executive officer Steve Sanger, and chief financial officer Jim Lawrence — informed the Golden Valley, Minnesota-based company that it had decided not to pursue any enforcement action.
“When they ‘Wells’ someone, it’s almost a done deal,” Howard Meyers, a former attorney with the SEC Division of Enforcement and now a partner with law firm Meyers & Heim, told the Minneapolis Star Tribune. “It’s not unheard of for the SEC to drop an investigation after a Wells notice, but it is certainly the exception. The SEC apparently did not have as strong of a case as they originally thought they did.”
“We are very pleased,” General Mills spokeswoman Marybeth Thorsgaard told the paper, declining to comment further.
In an April 2004 filing, the company explained that the commission was focusing on at disclosure issues related to the company’s U.S. retail division. One issue involved “loading” — the use of discounts or other promotional programs to encourage retailers and wholesalers to increase their purchases of products. The SEC, according to the filing, was looking into how well the company disclosed its practice of loading at the end of fiscal quarters to help meet internal sales targets, as well as the impact of loading on current and future results of operations.
Mark Hostetler, an attorney who represents food companies for Blackwell Sanders Peper Martin, speculated to the Star Tribune that the SEC chose not to take action against the company because the accounting related to loading is complicated and common throughout the industry. Therefore, he added, there was “no practical solution” to correct the problem.
According to the paper, the investigation was launched after an Arizona employee, Greg Downey, and his former supervisor, Jeff Millard, relayed to the SEC what they deemed to be questionable practices involving trade promotion spending and loading.
General Mills fired Millard in February 2003, citing a poor performance evaluation, according to the paper. Millard, who filed a wrongful termination suit, reached a settlement with the company on undisclosed terms several days before the case was to go to trial, the paper added.
The Star Tribune noted that in February of this year, Downey sued General Mills, alleging that the company violated a provision of the Sarbanes-Oxley Act by disparaging his reputation among his fellow employees and by suspending him without pay in November. He also filed a pay discrimination complaint against the company; both cases are still pending, the paper added.
In a related story, earlier this year former General Mills account manager John Nettle became one of nine people charged with helping to inflate the earnings of US Foodservice, a subsidiary of Royal Ahold, according to the Associated Press. The individuals were charged with signing false audit confirmation letters that overstated the amount of money owed to US Foodservice through “promotional allowance” agreements, the wire service added.