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CHS escapes SEC accounting fraud fine

The Securities and Exchange Commission (SEC) settled accusations that a Minnesota-based agricultural cooperative violated federal securities laws by filing materially misleading financial statements with the agency during a five-year period.

According to its website, CHS is a global agribusiness owned by farmers, ranchers, and cooperatives from across the United States. The corporation promised to cease and desist from future violations of federal securities laws in its settlement with the SEC but was not fined or otherwise penalised.

CHS did not admit or refute the findings of the agency.

In an administrative proceeding filed Friday, the SEC stated that CHS self-reported its alleged reporting, books-and-records, and accounting violations; fully cooperated with the agency's investigation; and participated in remediation measures to remedy flaws in its internal controls.

The alleged violations were caused by former CHS rail freight trader David Pope, who allegedly manipulated the quantity and pricing of some freight rail contracts from 2014 to 2018, according to the SEC. The misbehaviour happened as a result of inadequate internal accounting controls at CHS; according to the SEC's ruling, CHS enabled Pope to execute deals as well as establish their valuations, and no other CHS employee was entrusted with validating the veracity of the information he provided.

The SEC has also accused Pope with securities law crimes and is seeking permanent injunctions, disgorgement with prejudgment interest, and a civil penalty.

Considerations for compliance: According to the SEC, the alleged fraud was discovered in 2018 after a CHS vice president evaluated Pope's bid sheet and discovered its freight rail values were "grossly exaggerated." According to the agency's order, the company undertook an internal inquiry, which revealed "many phoney freight rail freight contracts that had been added to the company's books and records."

CHS immediately informed the SEC of its findings. Later, the corporation would restate its net income for fiscal years 2014-18.

The business fired Pope and "later terminated, demoted, or placed additional workers on performance improvement programmes for their insufficient management of the rail freight desk." Furthermore, without the urging or involvement of [SEC] employees, CHS pursued and clawed back incentive compensation from 26 current or former CHS executives and directors as a result of CHS's fraudulent financial statements," the ruling stated.

According to the SEC, CHS formed an internal controls remediation steering committee and hired outside experts to investigate and rectify its control issues. According to the SEC, the company also employed extra staff to strengthen its internal controls processes and implemented rules, procedures, controls, and training to avoid such events from occurring again.

"We are delighted to have this problem handled and appreciate that we were able to effectively partner with the SEC and demonstrate the level of cooperation highlighted in the SEC's ruling," a CHS spokesman said in an emailed statement. "We have taken the appropriate efforts to remedy the shortcomings that led to the investigation, and we are confident that we have strong internal controls and monitoring in place, underscoring our commitment to operating with integrity."



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