Dive Brief:

• The Securities and Exchange Commission fined Newell Brands $12.5 million and its former CEO $110,000 for misleading investors about sales growth in 2016 and 2017.
• As sales lagged company goals, Newell and former CEO Michael Polk pulled future sales into earlier quarters without adequate disclosure, overriding internal accounting controls and disregarding generally accepted accounting principles, the SEC said. The company then misled investors by saying results were “strong” or “solid.”
• “Newell’s former CEO issued an instruction to ‘scrub’ the company’s accruals after he learned that the company was projecting a ‘massive’ and ‘disappointing’ miss for the quarter,” Mark Cave, associate director of the SEC’s Enforcement Division, said in a statement. Senior executives “risk abusing the duties attendant to their offices when they reach into a company’s accounting control processes as a way of making up for performance shortfalls.”

Dive Insight:

Newell and Polk from the third quarter of 2016 through Q2 2017 used several accounting changes to align sub-par results with forecasts, the SEC said.

During the last month of each quarter — after employees determined that sales would undershoot internal targets, investor guidance or analyst estimates — Newell identified orders scheduled for delivery early in the next quarter and obtained customer permission to deliver the orders in the current quarter, the agency said.

Newell also used a “pick and holds” tactic, in which employees shipped goods early to customers without their approval, arranging for third parties to store the goods for days or weeks until delivery on dates during the next quarter requested by the customers, the SEC said.

Newell during Q3 2016 reclassified as administrative expenses — rather than as deductions from revenue — concessions to customers such as reduced shipping costs, the SEC said. The change veiled underperformance, creating “the appearance of higher sales and sales growth.”

During Q4 2016, after shipping in December some orders previously scheduled for shipment in January, Newell still fell short of sales goals, according to the agency. Polk told Newell’s leadership to “scrub” accruals for the cost of customer promotional incentives, discounts and rebates to identify accruals to be reduced.

In Q2 2017 a member of Newell’s audit committee and the company’s auditor expressed concern to company management about various reclassifications, the SEC said. Newell disregarded the warnings.

The company “deprived investors of information relevant to an accurate and complete understanding of actual sales trends,” the agency said.

A spokesperson for Newell, a consumer products company, declined to comment while referring to an 8-K filing with the SEC that neither admits nor denies the agency’s findings.

“The settlement does not name any of the current executive officers of the company,” Newell said in the Sept. 29 filing. “In connection with the settlement, which concludes the SEC’s investigation of the company, the SEC specifically noted the company’s significant cooperation, as well as improvements made to the company’s control environment.”