U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21195 / September 3, 2009
Accounting and Auditing Enforcement Release No. 3045 / September 3, 2009
SEC v. The Hain Celestial Group, Inc, CV 09-3826 (DRH) (E.D.N.Y.)
The Hain Celestial Group Inc. Settles Charges of Stock Options Backdating
The Securities and Exchange Commission today charged The Hain Celestial Group, Inc. ("Hain"), a Melville, New York natural foods company, alleging that Hain backdated and re-priced stock option grants to its officers, directors, and employees and reported false information to shareholders.
The SEC's complaint, filed in federal court in Brooklyn, New York, alleges that from at least 1998 to 2002, Hain fraudulently backdated stock options granted to Company officers, directors, and employees, concealing millions of dollars in expenses from the Company's shareholders. Hain, and its former Chief Financial Officer ("CFO") and Secretary, used hindsight to choose dates corresponding to low stock prices for stock option grants, backdated stock option agreements to make it appear as if options had been granted on the earlier dates, and prepared or approved financial statements and SEC filings that omitted necessary expenses for backdated options and falsely described Hain's option granting practices. During this period, Hain and its former CFO also re-priced grants that had previously been approved, but for which stock option paperwork had not yet been issued, to give recipients the advantage of subsequent lower exercise prices.
The SEC's complaint also alleges that by virtue of the undisclosed backdating and re-pricing scheme, Hain materially understated the Company's expenses and overstated its income in disclosures to the Commission and the investing public, and falsely represented in filings that Hain had incurred no expenses for option grants. Additionally, throughout the period of 1993-2005, Hain did not have adequate internal controls relating to the granting of stock options and did not maintain accurate books and records concerning its stock option grants.
After media inquiries and analyst reports regarding its stock option practices in mid-2006, Hain's current CFO conducted a limited internal review of selected grants. At the time, Hain did not retain outside counsel to review its historical option practices and did not conduct a forensic review of e-mails or accounting records. Subsequently, Hain's current CFO and the company made statements during September and November 2006 that the company had carefully reviewed its historical stock option grants and found nothing improper.
After being contacted by the SEC staff in mid-2007, Hain formed a group of independent directors and retained outside counsel and other experts to conduct a detailed review of its stock options practices. In January 2008, Hain restated its historical financial statements as a result of this review. Hain re-measured 48 grants and recorded $20.5 million of compensation expense. Twenty-one of the 48 re-measured grants, representing approximately 3.7 million options and $13.2 million of compensation expense, were issued between 1998 and 2002.
Without admitting or denying the SEC's allegations, Hain consented to a permanent injunction against violations of Section 17(a) of the Securities Act of 1933, Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Securities Exchange Act of 1934, and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 14a-9 thereunder. The settlement is subject to court approval. The Commission took into account the cooperation that Hain provided the Commission staff during its investigation.