LINCOLN, Neb. – A class-action lawsuit accuses ConAgra Foods (CAG) and its top executive of engaging in a scheme to manipulate the company's earnings.
The lawsuit, filed Tuesday in U.S. District Court, accuses Bruce Rohde, ConAgra's president, chief executive and chairman, of knowing that "adverse facts ... had not been disclosed to and were being concealed from the public" regarding the company's finances.
"Despite a fairly mundane business product — food — out of the past eight years, the company has been unable to report even one full year of accurate financial results," according the lawsuit, filed by stockholder David Berlien.
ConAgra spokesman Chris Kircher said the company had not seen the lawsuit and could not comment.
Earlier this year, ConAgra agreed to pay $14 million to settle a lawsuit over fictitious sales and misreported earnings at a former subsidiary.
Omaha-based ConAgra announced in May 2001 that accounting problems at its subsidiary, United Agri Products (search), would result in $120 million in lower earnings for 1998 through 2000.
Later, according to Berlien's lawsuit, "the company implied that it had enhanced its controls over its accounting department, and as it reported favorable results from 2003 to the first half of fiscal 2005, the perception was that the financials were accurate.
"In fact, the financials were false," according to the lawsuit.
After the United Agri Products troubles were made public, ConAgra instituted reforms, including precluding its senior executives from selling their ConAgra stock until six months after leaving the company, according to the lawsuit.
That, according to the lawsuit, prompted Rohde to approve "accounting tricks" to inflate ConAgra's income and thus enhance his bonuses based on the company's performance.
"Rohde manufactured a scheme to reap ill-gotten monies absent his ability to sell his shares," the lawsuit says.
In all, Rohde "cashed in on the ... scheme to the tune of $17.5 million," according to the lawsuit.
The earlier, United Agri Products lawsuit was filed on behalf of investors who held ConAgra stock between Aug. 28, 1998, and May 23, 2001. It alleged ConAgra and several of the company's officers and directors violated federal securities laws by misrepresenting the company's financial performance to inflate its stock value.
ConAgra sold United Agri Products in 2003.
The complaint alleged that throughout the fiscal years 1998, 1999 and 2000, United Agri Products reported sales of goods that had not yet taken place and reported sales to nonexistent customers.
Roughly $287 million in revenue was manipulated over the three years, which caused the earnings statements for both companies to be overstated.
ConAgra officers were accused of being aware of the fraud and "either encouraged it or turned a blind eye to it," according to court records.
In February 2001, ConAgra announced that it expected reduced profits for the second half of 2001 because of a tougher business climate and that is was looking at the "impact of accounting changes which the company is currently reviewing."
In the wake of that news, ConAgra's stock plummeted from $24.86 to $20.01 per share.
The United Agri Products lawsuit alleged that this seemingly unrelated announcement tipped off knowledgeable investors to ConAgra's accounting difficulties, and was made in order to take some of the sting out an upcoming announcement.
ConAgra later restated its earnings, and the company's stock dropped from $20.61 to $20.07 after that announcement.
ConAgra is one of the nation's largest food companies, with grocery store brand names that include ACT II popcorn, Banquet, Chef Boyardee (search), Marie Callender's (search), Egg Beaters (search) and Orville Redenbacher's (search).
Shares in the company rose 24 cents to $23.93 on the New York Stock Exchange.