September 1, 2016 5:31 pm

Monsanto whistleblower targets Deloitte

Ben McLannahan in New York

http://www.ft.com/cms/s/0/99461962-7056-11e6-a0c9-1365ce54b926.html

©Bloomberg

The SEC said in February Monsanto had insufficient internal controls to track rebates it offered to Roundup retailers

A whistleblower rewarded for exposing accounting violations has taken the unusual step of naming his employer, Monsanto, in the hope of prodding the regulator to take action against its auditor, Deloitte.

The Securities and Exchange Commission on Tuesday said it had awarded $22.4m — the second biggest payout since the programme was set up six years ago — to the corporate insider who helped the agency uncover a “well-hidden fraud”.

The award came six months after the SEC reached an $80m settlement with Monsanto, the agribusiness company, to resolve claims that it failed to properly account for the costs of a sales rebate programme for Roundup, its best-selling weedkiller.

In its statement on the award the SEC did not refer to the Monsanto case, but the connection was made this week by Stuart Meissner of Meissner Associates, a New York-based law firm that acted for the whistleblower. He said his client wanted to put pressure on the SEC to probe Deloitte’s role in the affair, which prompted the company to restate three years of profits in October 2011. The employee, who has elected to preserve his anonymity, left Monsanto during the course of the SEC investigation.

Mr Meissner claimed that Deloitte, Monsanto’s external auditor, had every opportunity to put a stop to the fraud but failed to do so.
“In our opinion, if they were being honest and forthright, they’d have supported my client when the matter was raised internally. And if they had supported my client, Monsanto would not have been able to use them as a shield, which they did in arguing that my client was wrong,” he said.

Deloitte, Monsanto and the SEC declined to comment.

The challenge to the SEC comes as audit firms are facing legal challenges on several fronts, accused of not doing enough to stop fraud. Last week PwC settled a multibillion-dollar lawsuit in Miami mid-trial, having battled charges that it was negligent when it signed off on six years of accounts from Colonial Bank, an Alabama-based lender that collapsed in 2009.

The SEC has taken a series of actions against auditors in recent years under an initiative known as “operation broken gate”. Mary Jo White, SEC chair, said in a 2013 speech that the regulator was determined to hold auditors to account if they missed, or ignored, red flags.

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In February the SEC said that Monsanto had insufficient internal controls to track millions of dollars in rebates it offered to Roundup retailers and distributors.

The rebates were part of a promotion that the St Louis-based company ran after sales of a generic version of the product undercut its business in 2009. Monsanto booked substantial revenues as a result of that promotion, which ran for two years, but did not recognise related costs, which led to “material” misstatements of profits.

The SEC’s 20-page enforcement order made only glancing references to the company’s outside auditor, which the regulator did not name.

Mr Meissner described external auditors as “critical watchdogs . . . that could either assist whistleblowers in stopping wrongdoing in its tracks, or having the opposite effect”. Audit firms may still be inclined to side with the company in the event of a dispute, he said — which could have the effect of “isolating” whistleblowers.

“That component of the problem does not seem to have been addressed,” he said. “Outside auditors are not necessarily as independent as their name indicates.”