Aurora Foods, St. Louis, continued to rebound early this fall — even as former ceo Ian Wilson and erstwhile chief financial officer M. Laurie Cummings pleaded guilty to conspiracy to commit securities fraud.
In September, Wilson and Cummings admitted to their roles in hiding more than $43 million of the company’s trade promotion expenses in 1998 and 1999. (Both resigned in February 2000.) Two other former executives, executive vp Ray Chung and vp-finance Dirk Grizzle, had already pleaded guilty in the case, brought by the U.S. Attorney’s Office in New York in January.
They and four others had also been indicted by the Securities and Exchange Commission for concealing higher-than-expected trade spending in an effort to inflate earnings. Two of them, senior financial analyst Tammy Fancelli and manager-customer financial services James Elliott, pleaded guilty in the SEC case in January and were fined $20,000 and $10,000, respectively. Because Aurora cooperated wtih the U.S. Attorney’s office, the company was not criminally charged.
Aurora was still ironing out the glitches in its marketing record-keeping in July when it reported second-quarter sales, which were up 2.4 percent to $219.9 million for the period ended June 30. At the quarter’s close, Aurora discovered a programming error in its promotion spending tracking system that understated the total for the quarter by $4 million. Aurora fixed the system and reported related charges in its second-quarter statement.
In May, Aurora instituted a corporate compliance program to prevent and detect unethical or illegal behavior. As part of its settlement with the SEC and the Justice Department, Aurora created a compliance officer post (held by senior vp-human resources Paul Graven) and a compliance committee including the ceo, cfo, internal auditor, controller, and executive vp of brands. The system fits with a vision and values program set by ceo Jim Smith, who came from ConAgra in April 2000 to replace Wilson. (Former Stroh Companies exec Christopher Sortwell took over for Cummings.)
The compliance committee issued Aurora’s first-ever code of conduct, now part of mandatory training for all employees. Training began in September and should finish this month.
The committee reviews activities quarterly. The code makes it mandatory for any employee who is aware of a violation to report it or face dismissal. “Employees appreciate this guidance and support,” says Graven, who won’t say whether any employees have reported misconduct.
The code specifies that advertising and promotion must be truthful and accurate, but doesn’t specifically address trade promotion. Its rules for record-keeping specify that “no officer, employee, or agent may make any entry that intentionally hides or disguises the true nature of any transaction,” including misstatement of liabilities or assets.
That speaks directly to the earlier fraud. According to the SEC, the indicted execs shifted trade promo expenses to Aurora’s accounts receivable, hiding it from auditors. From April 1999 on, Grizzle prepared two different quarterly reports on Aurora’s trade promotions reserve analysis — one for internal use, one for auditors, per SEC documents.
Aurora won’t comment on the guilty pleas, says spokesperson Hazel Morris. “That whole incident was part of a past life that’s behind Aurora.”
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