The Securities and Exchange Commission today charged biopesticide company Marrone Bio Innovations and a former executive with inflating financial results to meet projections it would double revenues in its first year as a public company. Marrone Bio agreed to pay a $1.75 million penalty to settle the SEC’s charges.
The SEC alleges that former chief operating officer Hector M. Absi Jr. concealed from Marrone Bio’s finance personnel and independent auditor various sales concessions offered to customers, leading the Davis, Calif.-based company to improperly recognize revenue on sales. Absi allegedly profited from the fraud. He resigned in August 2014 shortly before the alleged fraud came to light and the company’s stock price plunged more than 44 percent.
In a parallel action, the U.S Attorney’s Office for the Eastern District of California today announced criminal charges against Absi.
“We allege that Marrone Bio misled investors to make itself look like a fast-growing new public company,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office. “Public companies and their officers should know better that taking shortcuts to recognize revenue in the near term is harmful to investors and can be damaging to a company’s long-term success.”
According to the SEC’s complaint filed in U.S District Court for the Eastern District of California:
- In November 2015, Marrone Bio restated its results for fiscal 2013 and the first half of fiscal 2014, reversing approximately $2 million of previously reported revenue.
- Absi previously inflated Marrone Bio’s revenues by offering distributors “inventory protection,” a concession that allowed distributors to return unsold product.
- Absi also inflated Marrone Bio’s revenue by directing his subordinates to obtain false sales and shipping documents and intentionally ship the wrong product to book sales.
- Absi abused Marrone Bio’s expense reporting system to pay for personal items, including vacations, home furnishings, and professionally installed Christmas lights for his home. Absi falsified his bank and credit card statements to make it appear as though he had incurred the expenses for legitimate business purposes.
- Absi personally profited from his scheme, receiving more than $350,000 in bonuses, stock sale proceeds, and illegitimate expense reimbursements.
The SEC also instituted a settled administrative proceeding against Marrone Bio’s former customer relations manager Julieta Favela Barcenas for violations of the books and records provisions of the federal securities laws. Favela entered into a cooperation agreement to assist in the SEC’s investigation and ongoing litigation against Absi.
As required by Section 304(a) of the Sarbanes-Oxley Act, Marrone Bio CEO Pamela G. Marrone has reimbursed the company $15,234 and former CFO Donald J. Glidewell will reimburse the company $11,789 for incentive-based compensation they received following the filing of Marrone Bio’s misstated financial statements. They weren’t charged with any misconduct.
The SEC’s investigation was conducted by Joseph P. Ceglio and John A. Roscigno and supervised by Tracy L. Davis, and the litigation is being led by Robert L. Tashjian and Jason M. Habermeyer of the San Francisco office. The SEC appreciates the assistance of the U.S. Attorney’s Office for the Eastern District of California and the Federal Bureau of Investigation.
SEC Press Release
--- If you need help with a securities litigation, arbitration or litigation issue, email Mark Astarita or call 212-509-6544 to speak to a securities lawyer.