Compass Minerals fined $12M for disclosure control lapses

The SEC found Compass violated the antifraud, reporting, and internal controls provisions of the Securities Act and the Exchange Act for misleading investors about cost savings from a technology upgrade at its Canadian salt mine and not properly assessing risks created by excessive discharges of mercury at a chemical plant in Brazil.

Without admitting or denying the allegations, Compass agreed to cease and desist from further violations and retain an independent compliance consultant.

Compass made a $70-$80 million technology upgrade at its Ontario salt mine in 2016-17 and repeatedly assured investors the upgrade would reduce costs at the mine by as much as $30 million annually beginning in 2018, the SEC said.

Instead, due to operational issues, costs increased by 42 percent over that time period, according to the SEC’s order. Statements regarding the reason for the increased costs, made by the company’s then-chief financial officer during its first-quarter earnings call in May 2018, were misleading, the SEC said Friday in a press release. Compass also misled investors about how much salt it could produce at the mine, claiming it could produce 7.5 million tons per year while only producing 1.4 million tons.

In Brazil, the company failed to properly assess the risks associated with mercury contamination at a chemical plant owned by a subsidiary in Pernambuco, the SEC found. After firing the plant manager for cherry-picking test results to underplay the seriousness of the flow of mercury discharge from the facility into the Botafogo River, Compass remediated the contamination and improved lab testing procedures. But the company failed to properly analyze the risks and uncertainties associated with the facility possibly being closed by Brazilian authorities or the increased risk of being sued due to mercury contamination, the SEC said.

In addition, Compass materially misstated its interim financial results from 2005-21 by improperly valuing its salt inventory at the salt mine. The company used forecasted costs per ton of salt rather than actual costs per ton, as required by generally accepted accounting principles (GAAP).

Compliance considerations: As part of the settlement, Compass agreed to hire an independent compliance consultant within 30 days to review the company’s practices and procedures relating to “its salt inventory revaluation process and its disclosure controls and procedures, including but not limited to controls and procedures relating to collection and assessment of information concerning potential risks, contingencies, operating events, trends, and uncertainties,” the SEC’s order stated. The consultant must submit a report detailing the remediations made to the SEC and the company within one year.

As part of its remediation plan to address the concerns highlighted by the alleged disclosure failures, Compass created a new role of chief accounting officer; “developed new internal controls and procedures regarding disclosure and created a board-chartered disclosure committee; and added to its board of directors several new directors with industry experience in finance and accounting, as well as safety and sustainability,” the order said.

The company also identified a material weakness in its internal control over financial reporting and later restated its quarterly segment results for the first quarter of 2019 through the first quarter of 2021.

Company response: In an emailed statement from a spokesperson, Compass said it was “pleased to have reached a settlement with the SEC,” noting the company cooperated with the agency’s investigation and implemented remedial actions “to strengthen oversight at every level of our company.”

“Moving ahead, we remain focused on executing on our strategic priorities and delivering value for all of our stakeholders,” the statement said.