Shares of The Hain Celestial Group Inc (NASDAQ:HAIN) popped in pre-market trade on Wednesday after the natural and organic food company reached a settlement with the US Securities and Exchange Commission over dodgy accounting practices, which delayed its financial reporting.
Hain’s accounting practices and books and records reporting violated US securities law, according to the SEC.
Incentives were not properly documented and accounted for
The charges stemmed from weaknesses in the company’s internal controls related to end-of-quarter sales practices that were designed to help the company meet its internal sales targets.
Investors welcomed the SEC settlement, sending Hain shares up 6.4% to $20.00 before the opening bell on Wednesday.
According to the SEC, between 2014 and 2016, sales personnel for Hain Celestial offered the company’s two biggest distributors incentives at the end of fiscal quarters to encourage the purchase of enough inventory for Hain to meet quarterly internal sales targets.
Hain’s incentives includes rights of return for products that spoiled or expired before they were sold to retailers as well as cash incentives of up to $500,000, substantial discounts, and extended payment terms.
The incentives failed to be properly documented and accounted for and Hain’s finance department was not aware of the quarterly incentive practices until May of 2016.
After its finance department discovered the existence of the sales incentive practices, Hain introduced an internal investigation. In August 2016, the company self-reported to the SEC its discovery of the sales incentives and announced it was delaying its financial reporting for 2016.
Ten months later, Hain reported that financial restatements were not required and at the same time, disclosed material weaknesses in its internal control of financial reporting.
As part of this week's settlement, Hain has agreed to the SEC’s demands without admitting or denying its findings.
The SEC hasn’t imposed a monetary penalty on Hain due to the company’s cooperation with the investigation. Hain opted to self report and make significant changes to its revenue recognition practices on its own in response to the SEC’s demands.
Contact Ellen Kelleher at [email protected]