Diageo agrees to pay $5 million to settle SEC charges over its disclosure failures

diageo press kit
Source: Diageo press kit

Diageo plc agreed to pay a penalty of $5 million to settle the allegations of the U.S. Securities and Exchange Commission (SEC).

The SEC accused Diageo of violating the antifraud provisions of the Securities Act of 1933 by failing to disclose material information to investors. The Commission also accused the company of violating certain reporting provisions of the federal securities law.

Diageo is the world’s largest producer of alcoholic drinks including the Guinness beers and Johnnie Walker Scotch whiskeys and other brands.

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Diageo misled investors regarding its performance

According to the SEC, the employees of its most profitable subsidiary, Diageo North America (DNA) pressured distributors to buy products more than customer demand. Its objective was to meet internal sales targets while market conditions were declining.

The shipment increase allowed the company to meet performance targets and to report growth in key performance indicators. Analysts and investors are closely monitoring these indicators.

Diageo failed to disclose the trend to investors. It also failed to reveal the positive impact of the trend to its sales and profit as well as the negative impact of the unnecessary increase in inventory on its future growth.

Diageo and its subsidiary misled investors by creating the impression that they achieved certain key performance indicators through normal customer demand.

In a statement, SEC Division of Enforcement Associate Director Melissa Hodgman said, “Investors rely on public companies to make complete and accurate disclosures upon which they can base their investment decisions.”

“Diageo pressured distributors to take more products than they needed, creating a misleading picture of the company’s financial results and its ability to meet key performance indicators,” she added.

On the other hand, the company said it is “pleased to resolve” the SEC charges and expressed its commitment to “maintaining a robust and transparent disclosure process.”

The world’s largest producer of alcoholic drinks settled without admitting or denying the allegations of Commission.