A Minnesota-based agricultural cooperative settled charges levied by the Securities and Exchange Commission (SEC) that the company violated federal securities laws when it filed materially false financial statements with the agency over five years.
CHS is a global agribusiness owned by farmers, ranchers, and cooperatives across the United States, according to its website. In its settlement with the SEC, the company agreed to cease and desist from future violations of federal securities laws but was not fined or otherwise penalized.
CHS did not admit or deny the agency’s findings.
The SEC said Friday in an administrative proceeding CHS self-reported its alleged reporting, books-and-records, and accounting violations; fully cooperated with the agency’s investigation; and engaged in remediation efforts to address deficiencies in its internal controls.
The alleged violations stemmed from the actions of former CHS rail freight trader David Pope, who allegedly manipulated the quantities and values of certain freight rail contracts from 2014-18, the SEC said. The misconduct occurred because of CHS’s insufficient internal accounting controls; according to the SEC’s order, CHS allowed Pope to both execute trades and determine their valuations, and no other CHS employee was tasked with confirming the accuracy of the information he provided.
The SEC charged Pope separately with securities law violations and seeks permanent injunctions, disgorgement with prejudgment interest, and a civil penalty.
Compliance considerations: The alleged fraud was uncovered in 2018, when a CHS vice president reviewed Pope’s bid sheet and recognized its freight rail values were “grossly overstated,” according to the SEC. The company launched an internal investigation, which uncovered “numerous fictitious freight rail freight contracts that had been added to the company’s books and records,” the agency’s order said.
CHS promptly notified the SEC of its findings. The company would later restate its net income for its fiscal years 2014-18.
The company terminated Pope and “later terminated, demoted, or placed on performance improvement plans additional employees for their insufficient oversight of the rail freight desk. In addition, without [SEC] staff’s prompting or involvement, CHS pursued and clawed back incentive compensation from 26 current or former CHS officers and directors due to CHS’s false financial statements,” the order said.
CHS created an internal controls remediation steering committee and retained outside experts to analyze and correct its control failures, the SEC said. The company also hired additional personnel to bolster its internal controls processes and adopted policies, procedures, controls, and training to prevent the recurrence of similar events, the SEC said.
CHS response: “We are pleased to have this matter resolved and appreciate that we could effectively partner with the SEC and display the level of cooperation the SEC noted in its order,” a CHS spokesperson said in an emailed statement. “Underscoring our commitment to operating with integrity, we have taken the necessary actions to remediate the issues that led to the investigation, and we feel confident that we have effective internal controls and oversight in place.”