Dive Brief:

• Chicago-based Archer Daniels Midland said it received “voluntary document requests” from the Department of Justice after disclosing an internal probe into certain accounting practices on Jan. 21, according to a Securities and Exchange Commission filing Tuesday. 
• The agricultural commodity giant also said the DOJ “directed grand jury subpoenas to certain current and former company employees,” according to details contained in its annual 10-K filing. 
• The news comes on the heels of the company placing CFO Vikram Luthar on administrative leave in January, pending an internal probe by outside counsel and the board’s audit committee in connection with certain accounting practices related to its nutrition reporting group and certain intersegment transactions. 

Dive Insight:

ADM’s statements on the DOJ’s involvement confirm previous media reports of a DOJ probe into the company’s accounting practices, signaling potentially broadening scrutiny. The company, which had previously declined to comment on the alleged DOJ matter, cited “government investigations” in a release Tuesday in which it said it was continuing to cooperate with the DOJ and SEC.   

The company also provided updates regarding its ongoing internal investigation in the Tuesday release, saying it corrected certain intersegment sales and that it has developed what it called a remediation plan to “enhance the reliability of its financial statements with respect to the pricing and reporting of such [intersegment] sales.”

The ADM release asserted that the adjustments have no impact on the company’s consolidated balance sheets and earnings and stated that the “adjustments are not material to the Company’s consolidated financial statements taken as a whole for any period.” 

At issue are intersegment sales historically disclosed in footnotes at amounts approximating market values, the company said in the release. The company identified and corrected certain sales transactions between its Nutrition and Ag Services and Oilseeds and Carbohydrate Solutions reporting segments that were not recorded at “amounts approximating market.”

The company’s 10-K annual report, filed after a roughly two month delay stemming from its internal investigation, also included an unfavorable opinion from its public accounting firm, Ernst & Young, regarding its internal control over financial reporting.  

“We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board the Company’s internal control over financial reporting as of December 31, 2023…and our report dated March 12, 2024 expressed an adverse opinion thereon,” the opinion reads.

EY’s finding was not altogether a surprise, as the company warned March 1 that it expected to report the material weakness in its internal control over financial reporting. 

Still, Seth Goldstein, an analyst with Morningstar Research Services who follows the company, called the adverse opinion “fairly unusual.” Goldstein noted in an email that typically auditors are frequently consulted when developing accounting practices, such as recording intersegment revenue. 

Despite the news of the subpoenas and investigations, ADM shares rose 3.9% to close at 57.06 Tuesday. Morningstar retained its $60 fair value estimate value on the shares following the news and ADM’s fourth quarter report. 

“In my view, shares are up as the market is reacting to ADM being done with the restatement and results not being worse than ADM originally reported. While the SEC and DOJ investigations are still ongoing, ADM being able to file its 10-K is a positive sign that the impact to the company was limited,” Goldstein said. 

For the fourth quarter ended Dec. 31 the company reported GAAP segment operating profit of $1.23 billion, down 23% from the year-earlier period. 

In an earnings call Tuesday morning, ADM CEO Juan Luciano struck a positive tone on the progress of its internal investigation, but declined to take comments on the matter. 

“Throughout this process, we have continued to operate the business and drive our strategic priorities forward,” he said. “While our internal investigation is substantially complete, we continue to cooperate with the Securities and Exchange Commission and the Department of Justice, and we hope you understand that we will not be taking questions related to these matters on the call today.” 

A company spokesperson also declined comment.

Editor’s note: This story was updated to include additional information including comments from an analyst and the company’s CEO.