U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23192 / February 6, 2015
Accounting and Auditing Enforcement Release No. 3630 / February 6, 2015
Securities and Exchange Commission v. Steven Neil, Civil Action No. 14-cv-122 WHA (N.D. Cal. filed Jan. 9, 2014)
Chief Financial Officer Settles Accounting Fraud Charges
The Securities and Exchange Commission today announced that the United States District Court for the Northern District of California entered a final, settled judgment against defendant Steven Neil. In 2014, the SEC charged Neil with engaging in financial accounting fraud at Diamond Foods, Inc. (“Diamond”), a California-based snack food company.
According to the SEC’s complaint, Neil, Diamond’s former CFO, directed an effort to fraudulently underreport money paid to walnut growers by delaying the recognition of related expenses into later fiscal periods. By manipulating walnut costs, Diamond reported higher net income and inflated earnings to exceed analysts’ estimates for fiscal quarters in 2010 and 2011. After Diamond restated its financial results in November 2012 to reflect the true cost of acquiring walnuts, the company's stock price slid to just $17 per share from a high of $90 per share in 2011. Diamond subsequently restated its financial statements and terminated Neil.
Without admitting or denying the SEC’s allegations, Neil consented to entry of final judgment, which the court entered on February 2, 2015. The final judgment orders Neil to pay $125,000 in civil monetary penalties; enjoins him from violating Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 thereunder; and bars him from serving as an officer or director of a public company for five years. As part of the settlement, Neil also agreed to forfeit a legal claim against Diamond related to shares of stock and stock options that the company awarded him in part during the time of the fraudulent financial reporting. These shares and stock options are worth as much as nearly $1 million at the company’s current stock price.
In connection with the settlement, Neil also agreed to be barred from practicing as an accountant before the SEC, with a right to reapply after 5 years. The SEC’s related order was issued February 4, 2015.
Previous release: Litigation Release No. 22902 (Jan. 9, 2014).