DELACION, SHERWIN D.

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Kraft Heinz Fined $62M for Accounting Fraud

Published Sept. 3, 2021, by Matthew Heller

The Kraft Heinz Company, the world's fifth-largest food and beverage company, is the
third-largest in North America and the world's fifth-largest with eight $1 billion+ brands. As a
globally trusted producer of delicious foods, it offers high-quality, delicious, and nutritious
options for all eating occasions.
The Securities and Exchange Commission (SEC) has charged Kraft Heinz Company
with a long-running expense management scheme that resulted in the restatement of several
years of financial reporting. The company engaged in various types of accounting misconduct,
including recognizing unearned discounts from suppliers and maintaining false and misleading
supplier contracts. These improprieties improperly reduced the company's cost of goods sold
and allegedly achieved "cost savings." The accounting improprieties resulted in Kraft reporting
inflated adjusted "EBITDA," a key earnings performance metric for investors. In June 2019,
Kraft restated its financials, correcting a total of $208 million in improperly recognized cost
savings arising out of nearly 300 transactions. The SEC's order finds Kraft violated the
negligence-based anti-fraud, reporting, books and records, and internal accounting controls
provisions of the federal securities laws.
Kraft agreed to pay a civil penalty of $62 million and to cease and desist from future
violations, while former Chief Operating Officer Eduardo Pelleissone and former Chief
Procurement Officer Klaus Hofmann will pay fines of $300,000 and $100,000, respectively.
According to the SEC, the violations harmed investors, who had to bear the costs and burdens
of a restatement and delayed financial reporting.
Conclusion:
Kraft Heinz has been charged by the SEC with a long-running expense management
scheme, resulting in the restatement of financial reporting and violating federal securities laws.
The company has agreed to cease future violations and pay a civil penalty.

EBITDA measures a company's profitability before indebtedness, state-mandated payments,

and asset maintenance costs. It excludes wages, raw materials, services, borrowing costs,
lease expenses, and government obligations from revenues.