Walnut firm hit with lawsuits

Diamond Foods Inc. faces complaints from stockholders about how it accounted for payments to walnut growers in the Central Valley.

Lawsuits filed last month claim that Diamond delayed some of the payments past the July 31 end of its fiscal year to make its finances look better than they were.

The defendants in two of the lawsuits name the Diamond board of directors, which included Joseph Silveira of Turlock until his death Nov. 15 at age 64. The Stanislaus County coroner's office reported that he committed suicide.

Diamond said in a written statement there was no link between Silveira's death and the accounting issue, and to suggest otherwise "is demeaning to his legacy."

The complaints appear to have contributed to a large drop in the company's stock price. It traded as high as $96.13 per share on the NASDAQ exchange over the past year. Thursday, it closed at $29.50.

The dispute arose as Diamond was preparing to complete its purchase of the Pringles snack operation from Procter & Gamble Co. Under the terms of the deal, P&G stockholders could choose to receive shares in Diamond.

Diamond is delaying the purchase while its board's audit committee investigates the accounting complaints.

"While we understand that the investment community would like the company to be providing additional detail about the investigation, we support the audit committee in its process, which includes refraining from public comment regarding these matters until the investigation has been completed," Michael Mendes, president and chief executive, said in a news release.

The San Francisco-based company processes about half of the valley walnut crop in Stockton and has a seasonal receiving station on Mitchell Road near Modesto.

The nuts end up in retail packages for snackers and home cooks, as well as in products made by food companies around the world.

Diamond has diversified in recent years, launching the Emerald snack nut line and buying the Kettle potato chip and Pop Secret popcorn brands.

The $1.5 billion purchase of Pringles, which are made from dried potatoes and other ingredients, would make Diamond the second-largest snack producer in the nation. First by far is Frito-Lay, which has a Modesto chip plant.

Diamond mentioned the lawsuits in a filing Monday with the U.S. Securities and Exchange Commission. The two cases that include the board as defendants were filed in San Francisco Superior Court. The others were filed in U.S. District Court in the same city.

One of the latter lawsuits cites a Wall Street Journal article on Diamond that estimated that $50 million in grower payments were moved between fiscal years.

The lawsuit claims that proper accounting "would have reduced the company's fiscal 2011 operating income by $50 million, devouring a substantial portion of the company's reported fiscal 2011 earnings."

But the lawsuit also quotes a report from Jefferies & Co., a global investment banking firm, that says such late payments were not unusual and the $50 million figure was exaggerated.

Diamond was founded in 1912 as a cooperative owned by California walnut growers. It became a publicly traded company in 2005. It is not affiliated with the Blue Diamond Growers cooperative, the largest processor of the state's almonds.

The accounting issue has been much discussed in the financial media, some of it mentioning Silveira's death.

"Joe served Diamond shareholders as a director with dignity and dedication for many years," the company statement says. "Any suggestion that his passing was somehow related to the accounting investigation by people seeking to profit by spreading such unfounded rumors is demeaning to his legacy."

Bee staff writer John Holland can be reached at jholland@modbee.com or (209) 578-2385.