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SEC Settles Charges With Biopesticide Company Over Accounting Fraud

Chris Lange

Published: February 18, 2016 11:35 am

Last Updated: January 13, 2020 1:02 pm

The U.S. Securities and Exchange Commission (SEC) charged biopesticide company Marrone Bio Innovations Inc. (NASDAQ: MBII) and a former executive with inflating financial results to meet the projections that it would double revenues in its first year as a public company. Marrone Bio agreed to pay a $1.75 million penalty to settle the SEC’s charges.

According to the SEC allegations, former Chief Operating Officer Hector M. Absi Jr. concealed from Marrone Bio’s finance personnel and independent auditor various sales concessions offered to customers, leading the company to improperly recognize revenue on sales.

At the same time, Absi allegedly profited from the fraud. He resigned in August 2014, shortly before the alleged fraud came to light, and the company’s stock price plunged more than 44%.

Jina L. Choi, director of the SEC’s San Francisco Regional Office, commented:

We allege that Marrone Bio misled investors to make itself look like a fast-growing new public company. Public companies and their officers should know better that taking shortcuts to recognize revenue in the near term is harmful to investors and can be damaging to a company’s long-term success.

The agency detailed in its report:

• In November 2015, Marrone Bio restated its results for fiscal 2013 and the first half of fiscal 2014, reversing approximately $2 million of previously reported revenue.
• Absi previously inflated Marrone Bio’s revenues by offering distributors “inventory protection,” a concession that allowed distributors to return unsold product.
• Absi also inflated Marrone Bio’s revenue by directing his subordinates to obtain false sales and shipping documents and intentionally ship the wrong product to book sales.
• Absi abused Marrone Bio’s expense reporting system to pay for personal items, including vacations, home furnishings, and professionally installed Christmas lights for his home. Absi falsified his bank and credit card statements to make it appear as though he had incurred the expenses for legitimate business purposes.
• Absi personally profited from his scheme, receiving more than $350,000 in bonuses, stock sale proceeds, and illegitimate expense reimbursements.

In a parallel action, the U.S. Attorney’s Office for the Eastern District of California Thursday announced criminal charges against Absi.

Shares of Marrone were trading up 12.7% at $1.15, with a consensus analyst price target of $2.13 and a 52-week trading range of $0.62 to $4.43. It has a market cap of roughly $32 million.