SEC Charges Global Alcohol Producer, Diageo Plc, With Disclosure Failure

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Thursday, February 20, 2020   /04:17 PM  / By Mondovisione / Header Image Credit:


The Securities and Exchange Commission announced charges against alcohol producer Diageo plc for failing to make required disclosures of known trends relating to the shipments of unneeded products by its North American subsidiary to distributors. Diageo has agreed to pay $5 million to settle the action.


According to the SEC's order, employees at Diageo North America (DNA), Diageo's largest and most profitable subsidiary, pressured distributors to buy products in excess of demand in order to meet internal sales targets in the face of declining market conditions. The resulting increase in shipments enabled Diageo to meet performance targets and to report higher growth in key performance indicators that were closely followed by investors and analysts.


The order finds that Diageo failed to disclose the trends that resulted from shipping products in excess of demand, the positive impact the overshipping had on sales and profits, and the negative impact that the unnecessary increase in inventory would have on future growth. The order further finds that investors were instead left with the misleading impression that Diageo and DNA were able to achieve growth in certain key performance indicators through normal customer demand for Diageo's products.


"Investors rely on public companies to make complete and accurate disclosures upon which they can base their investment decisions," said Melissa R. Hodgman, an Associate Director in the SEC's Division of Enforcement. "Diageo pressured distributors to take more products than they needed, creating a misleading picture of the company's financial results and its ability to meet key performance indicators."


The SEC's order finds that Diageo violated the antifraud provisions of Section 17(a)(2) and (3) of the Securities Act of 1933, as well as certain reporting provisions of the federal securities laws. Without admitting or denying the findings in the SEC's order, Diageo agreed to cease and desist from further violations and to pay a $5 million penalty.


The SEC's investigation was conducted by Stephen T. Kaiser and Matthew Reisig, with assistance from Melissa Armstrong and Fred Block of the Trial Unit, and supervised by Melissa R. Hodgman and Timothy N. England


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