When Kraft merged with Heinz in 2015, it was meant to be one other probability for the non-public fairness agency 3G Capital to apply the identical ruthless value financial savings it had already launched at Heinz and had used all through the patron items business. But at Kraft Heinz, the technique was pushed too far, federal regulators mentioned.
On Friday, the Securities and Exchange Commission mentioned it had charged the packaged meals large and two former executives with a “scheme” to inflate these value financial savings. Kraft Heinz can pay $62 million to settle the case.
“Kraft and its former executives are charged with engaging in improper expense management practices that spanned many years and involved numerous misleading transactions, millions in bogus cost savings and a pervasive breakdown in accounting controls,” Anita Bandy, an affiliate director of the S.E.C.’s enforcement division, mentioned in an announcement.
“Kraft and its former executives are being held accountable for placing the pursuit of cost savings above compliance with the law,” she added.
Kraft Heinz has “fully cooperated” with the S.E.C. investigation, mentioned Kathy Krenger, a spokeswoman for the corporate.
“The internal control weaknesses we identified and disclosed in 2019 were fully remediated in 2020,” Ms. Krenger mentioned. “Kraft Heinz is much stronger today because of the actions we took and embedded into our company culture.”
The firm neither admitted nor denied the S.E.C.’s findings.
Kraft Heinz set efficiency targets for its procurement division tied to attaining value financial savings that the corporate had promised traders within the wake of the merger, the S.E.C. mentioned in its lawsuit. But by 2017, Kraft Heinz had “largely exhausted its ability” to extract extra financial savings from the 2015 merger, simply because it as was going through inflationary headwinds.
Kraft Heinz’s former chief working officer Eduardo Pelleissone continued to push for “unreasonable” ranges of value financial savings, the go well with alleges, and the division improperly acknowledged 59 transactions.
The go well with expenses Mr. Pelleissone with ignoring warning indicators of the accounting misconduct and the corporate’s former chief procurement officer Klaus Hofmann with failing to design efficient accounting controls.
Mr. Pelleissone agreed to penalties totaling $314,211. Mr. Hofmann agreed to a high quality of $100,000 and a ban on serving as an officer or director of a public firm for 5 years.
Lawyers for Mr. Pelleissone and Mr. Hofmann didn’t instantly reply to requests for remark. Neither man admitted wrongdoing.
Kraft Heinz first disclosed the S.E.C. inquiry in early 2019, the identical day it introduced it might be writing down the worth of its Kraft and Oscar Mayer manufacturers by greater than $15 billion, sending its shares in a tailspin. As the corporate labored by points with regulators, it twice delayed its annual report and unveiled additional write-downs of its well-known manufacturers.
Warren E. Buffett, whose Berkshire Hathaway teamed up with 3G on the 2015 merger, has since mentioned he “overpaid” for the packaged meals large. Berkshire owns a bit of over 1 / 4 of the corporate.
Numerous senior executives have left Kraft Heinz because the 2019 disclosure, together with Bernardo Hees, who had served as chief govt, and David Knopf, who had been the chief monetary officer.