Seaboard Corp., the company that seven years ago lent its name to a Securities and Exchange Commission policy of leniency toward companies that self-report wrongdoing, announced yesterday in a regular filing the discovery of an accounting error in one of its business units related to consolidation and intercompany elimination.
The agribusiness and transportation company said the error was discovered this past quarter in its Marine segment and was related to the “intercompany elimination process of its foreign outport operations.” A company spokesman said CFO Robert L. Steer declined to provide additional explanation of the error to CFO.com.
According to the company’s filing, the error increased sales and net earnings by $2.1 million in 2006, $4.17 million in 2007, and $964,000 in the first quarter of 2008. Seaboard, which reported $2 billion in sales in the first six months of this year, said the effect on those prior periods was not material, and recorded a one-time adjustment of $7,236,999 in the second quarter of 2008. The company has a $2.1 billion market capitalization but is thinly traded, with less than 2,000 shares a day changing hands.
Indeed, Seaboard’s main claim to fame was former SEC chairman Harvey Pitt’s 2001 decision to hold the company up as an example of how corporate cooperation could win a company lenient treatment from the commission.
In December 2001, Gisela de Leon-Meredith, controller of Seaboard’s Chestnut Hill Farms division, was caught overstating deferred-farming-cost assets and understating farming expenses, inflating revenues by a total of $7 million between 1995 and the first quarter of 2000. When confronted by the internal-audit staff, Leon-Meredith confessed, and Seaboard announced it would restate its earnings in August 2000.
Seaboard’s prompt reporting, and its willingness to hand over the information it had gathered from its internal investigation, was held up as an example of exemplary behavior by Pitt, who signed an enforcement report — now widely called the “Seaboard Report” — that stated: “When businesses seek out, self-report, and rectify illegal conduct, and otherwise cooperate with commission staff, large expenditures of government and shareholder resources can be avoided.”
As a result of its cooperation, no charges or penalties were levied against the company or its senior management. Coming shortly before meltdowns at Enron and WorldCom, the policy was widely derided as a sign that the SEC was going easy on corporate wrongdoing. More recently, however, the SEC’s Seaboard Report has been associated with similar policies at the Department of Justice — the so-called Thompson and McNulty memos. Those memos also emphasized that companies should provide the government with access to internal investigations and were seen by critics as a heavy-handed violation of attorney-client privilege. In late June, Sen. Arlen Specter (R-Pa.) introduced a bill would make it illegal for federal enforcement agencies — including both the DoJ and the SEC — to demand documents that are protected by attorney-client confidentiality in exchange for lenient treatment in federal prosecutions.