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January 9, 2014

Diamond settles SEC case over walnut payments

Diamond Foods Inc. has agreed to pay $5 million to the U.S. Securities and Exchange Commission to settle charges that it inflated its value by misreporting payments to walnut growers.

Diamond Foods Inc. will pay $5 million to settle charges that it misreported payments to walnut growers, the U.S. Security and Exchange Commission announced Thursday.

The company, which processes walnuts from much of the Central Valley, was accused of shifting the payments between fiscal years to enhance its net income for 2010 and 2011.

The SEC said former Chief Financial Officer Steven Neil underreported walnut costs by $10.5 million in fiscal 2010 and $23.6 million the following year. He still faces charges in the case.

“Diamond Foods misled investors on Main Street to believe that the company was consistently beating earnings estimates on Wall Street,” said Jina L. Choi, director of the SEC’s regional office in San Francisco, in a news release. “Corporate officers cannot manipulate fiscal numbers to create a false impression of consistent earnings growth.”

Michael Mendes, a former chief executive officer at Diamond, agreed to pay $125,000 to settle the negligence case against him. He already has given up more than $4 million in bonuses and other benefits he received during the period at issue, the SEC said.

The company and Mendes settled the case “without admitting or denying the allegations,” the release said.

It added that Diamond’s cooperation with the investigation and its “remedial efforts” played a part in the settlement. A company spokesman could not be reached for comment.

The SEC said it would look into paying the settlement money to investors who were harmed, if “a distribution is feasible.”

The agency continues its litigation against Neil, who has denied the charges.

The accounting controversy emerged as Diamond was close to completing a $1.5 billion purchase of the Pringles snack chip brand from Procter & Gamble Co. Under the terms of the deal, P&G shareholders could have chosen to receive Diamond stock. It never went through.

The misreporting contributed to a spike in Diamond stock, past $90 per share in September 2011, the SEC said. It closed at $25.36 on the NASDAQ exchange Thursday.

Diamond, based in San Francisco, is the largest processor of California-grown walnuts. It has its main plant in Stockton and a seasonal receiving station near Modesto Airport.

The business started in 1912 as a cooperative owned by walnut growers and became a publicly traded company in 2005. In recent years, it created the Emerald snack line, with various nuts and other ingredients, and acquired the Pop Secret popcorn brand and Kettle potato chip brand.

The company is not affiliated with Blue Diamond Growers, the state’s largest almond processor.

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