The U.S. Justice Department is currently investigating the accounting practices of Archer Daniels Midland Co (ADM), as informed by two individuals with firsthand knowledge. This development has escalated scrutiny on the multinational commodities corporation.
ADM’s stock, traded on the New York Stock Exchange, experienced a significant 24% drop on January 22. This decline followed an announcement on the previous day that ADM had put its CFO on leave due to an internal investigation concerning accounting methods within its Nutrition division. This internal investigation was initiated in response to an inquiry from the Securities and Exchange Commission (SEC).
Recently, the U.S. Attorney’s Office for the Southern District of New York (SDNY) has been interviewing former ADM employees about the company’s accounting practices. ADM, a 122-year-old Chicago-based company, is known for producing animal feed, sweeteners, and various other products. The interviews conducted by a SDNY prosecutor focused particularly on ADM’s pricing strategies regarding the sale of products from its commodities divisions to the Nutrition division.
A third individual, also knowledgeable about the situation, revealed that the SDNY has commenced an investigation into ADM. However, the specifics of this investigation remain unknown.
The extent and progress of the Justice Department’s probe into ADM are not yet clear, according to Reuters.
Representatives from ADM and SDNY have chosen not to comment on the matter.
It’s important to note that government investigations do not automatically imply misconduct and do not always lead to charges. Nonetheless, the involvement of the Justice Department, which holds the authority to file criminal charges and impose substantial fines, heightens the pressure on ADM and could further worry investors.
Following these developments, ADM’s shares continued to decline, dropping an additional 4.3% to $53.29 by approximately 1:43 p.m. EST on Monday.
Whether the Justice Department’s investigation is directly linked to ADM’s own internal probe is yet to be determined. ADM’s internal investigation is focusing on “intersegment transactions” within its Nutrition reporting segment and the movement of goods between segments, as revealed in their January 21 disclosure. This announcement also mentioned a delay in the release of their financial results.
The Nutrition division, which produces ingredients for pet food, animal feed, and consumer products like energy bars, is a smaller unit within ADM. However, since 2020, this division has been significantly influential in determining executive compensation at the company.
In 2020, ADM’s Compensation and Succession Committee revised its policy, tying half of the long-term executive compensation to the operating profit growth of the Nutrition segment. This was a change from the previous criteria which included ADM’s adjusted earnings, return on invested capital, and relative total shareholder returns, as per ADM’s regulatory filings.
The 24% decline in ADM’s share price marked its largest single-day drop since 1929, according to data from the Chicago-based Center for Research in Security Prices.
Furthermore, Reuters reported last week that ADM has informed its employees about delaying bonuses for some top executives until its financial statements are finalized and audited.
