Diageo has agreed to pay a USD5 million fine to settle U.S. Securities and Exchange Commission (SEC) charges. In a short press statement, the UK-based global leader in beverage alcohol said today that “Diageo is pleased to have resolved this legacy matter, which relates back to fiscal years 2014 and 2015.” In its statement the company that produces and distributes products like Guinness beer, Johnnie Walker whisky, Smirnoff vodka, Captain Morgan rum, Baileys Irish cream liqueur, Don Julio tequila and Tanqueray gin, neither confirmed any wrongdoing nor the payment.
The SEC claimed that Diageo North America pushed its clients in the two respective years to buy more products than they needed in order to report higher growth in net sales and operating profit. According to Melissa R. Hodgman, an Associate Director in the SEC's Division of Enforcement, this behavior did not create sustainable grow and a lead to “a misleading picture of the company's financial results and its ability to meet key performance indicators.”
“Investors rely on public companies to make complete and accurate disclosures upon which they can base their investment decisions," Hodgman said.
The SEC explained in a statement that “employees at Diageo North America (DNA), Diageo's largest and most profitable subsidiary, pressured distributors to buy products in excess of demand in order to meet internal sales targets in the face of declining market conditions. The resulting increase in shipments enabled Diageo to meet performance targets and to report higher growth in key performance indicators that were closely followed by investors and analysts.”
“The order finds that Diageo failed to disclose the trends that resulted from shipping products in excess of demand, the positive impact the overshipping had on sales and profits, and the negative impact that the unnecessary increase in inventory would have on future growth,” the SEC said.
“The order further finds that investors were instead left with the misleading impression that Diageo and DNA were able to achieve growth in certain key performance indicators through normal customer demand for Diageo's products.”
“The SEC's order finds that Diageo violated the antifraud provisions of Section 17(a)(2) and (3) of the Securities Act of 1933, as well as certain reporting provisions of the federal securities laws. Without admitting or denying the findings in the SEC's order, Diageo agreed to cease and desist from further violations and to pay a $5 million penalty,” the SEC concludes.