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June 2, 2005
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| General Mills headquarters in Golden Valley, Minnesota. The company said Thursday the SEC has ended its probe of General Mills' business practices without taking action. (Photo courtesy of General Mills) |
Golden Valley, Minn. — General Mills learned in October 2003 it was being investigated and denied the charges saying it had violated no accounting rules. A few months later, the SEC said it was considering pursuing civil legal action against the company, its CEO Steve Sanger, and chief financial officer James Lawrence.
Thursday, the Golden Valley-based company said it has learned the SEC's probe is done.
"The staff of the Securities and Exchange Commission has decided to terminate its investigation of its sales practices and it's related accounting," says General Mills spokeswoman Mary Beth Thorsgaard.
An SEC spokesman says the agency never publicly confirms or denies the confidential investigations of companies.
Former SEC enforcement attorney Ivan Knauer, now a Washington, D.C. attorney in private practice, says it's not easy for outsiders to determine what the SEC decision means.
"Any number of things can take place behind the closed doors of the SEC," he says.
Knauer worked for the SEC in the late 1990s.
The end of the investigation could mean SEC staff didn't have enough evidence of wrongdoing to make a recommendation for action to the commission, the possibility General Mills did nothing wrong, or any number of other reasons.
"Either the company has been so cooperative and things have changed, or maybe the company or the SEC didn't quite understand what was going on at the company at the time of the investigation and they've learned more facts," says Knauer. "The closure letter, or determination to not go forward, generally means for whatever reason, in their infinite wisdom, the staff decided it's not worth bringing a case here."
General Mills faced the possibility of civil charges by securities regulators for a sales practice called loading.
A former employee with a grievance against the company accused General Mills of improperly shipping excessive amounts of cereal and other products to supermarkets in order to show higher sales, and of compensating store owners to accept the products.
Securities regulators worry the practice can mislead investors about the health of a business.
General Mills' few public statements about the issues essentially deny selling customers more than they want or need. The company says it does use the term loading -- for programs to increase supermarket inventories, which can lead to more sales to consumers.
The company says it uses loading when launching new products, in peak promotion seasons like the holidays, and near the end of a quarter when trying to reach sales goals and to support its promotion programs.
General Mills CEO Steven Sanger has said the company gives price discounts when introducing a new product, to ensure fast and broad distribution. He says the company also gives sales people discretion in their use of funds for promoting sales.
A company spokesman has said incentives for customers in the form of payments or discounts are proper if accounted for correctly, and are a normal practice in many industries.
Sanger acknowledged retailer inventories grow slightly toward the end of General Mills' fiscal quarters, as the company works to reach sales goals.
Former SEC attorneys say a probe by the federal government can damage a company's reputation.
Analyst John McMillan follows General Mills for New York City-based Prudential. He says General Mills comes out of the experience with a clean record.
"In this age of (New York Attorney General Elliott) Spitzers and so forth, I think the government going after companies is almost a normal course of business," sas McMillan. "I think they walk away with their reputation intact. That's deservedly so. General Mills has a long history of ethical business practices."
The end of the SEC probe does not appear to have had much of an impact on the company's stock. General Mills' share price closed Thursday up 10 cents, or two-tenths of one percent.
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