The U.S. Securities and Exchange Commission (SEC) also said three accounting and sales executives have agreed to settle charges in connection with the case.

The SEC’s case against Monsanto revolves around a corporate rebate program designed to boost sales of Roundup, a popular weed killer. The rebate program was created to combat rising generic competition which threatened to cut into the company’s profits.

The agency said that Monsanto had insufficient internal controls to account for millions of dollars in rebates that it offered to retailers and distributors. It ultimately booked a sizeable amount of revenue, but then failed to recognize the costs of the rebate programs on its books.

That led the St. Louis-based agriculture company to “materially” misstate its consolidated earnings for a three-year period.

In a statement, the company said it fully reserved funds to pay for the penalty in fiscal year 2015.

Monsanto added that it is not required to change any of its historical statements because the company already previously in 2011 restated its financial statements for fiscal year 2009 through the third quarter of fiscal year 2011.

“Public companies need to have robust systems in place to ensure that all of their transactions are recognized in the correct reporting report,” said Scott Friestad, the SEC’s associate director for the enforcement division.

In agreeing to settle, Monsanto neither admitted nor denied the charges, which include fraud. The agency did not charge the company with knowingly committing the violations.

Monsanto accounting executives Sara Brunnquell, Anthony Hartke and then-sales executive Jonathan Nienas also each agreed to pay penalties.

Brunnquell and Hartke will also be temporarily suspended from acting as accountants for public companies.

Attorneys for Brunnquell and Hartke did not have any immediate comment. An attorney for Nienas could not be immediately reached.

The SEC said it did not uncover any personal misconduct by Monsanto CEO Hugh Grant or former chief financial officer Carl Casale.

Grant and Casale previously reimbursed the company for cash bonuses and stock awards they received during the periods the violations occurred.

— Sarah N. Lynch reports on financial regulations and financial crime for Reuters from Washington, D.C. Additional reporting for Reuters by Lisa Lambert in Washington.

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AgFeed Industries, which is currently in bankruptcy, was charged by the Securities and Exchange Commission in March in connection with charges that it reported fake revenue from its China-based operations to help prop up its stock price.

AgFeed previously was based in China before it merged with a U.S. company in 2010 and spread its operations between the two countries.

According to the SEC, AgFeed’s Chinese management kept two sets of books — a real one and a fake one to present to investors.

From 2008 through June 2011, it inflated the company’s revenue by US$239 million by using phony invoices for feed and hog sales and by inflating hog weights because fatter hogs fetched higher prices. To cover up the fraud, it later reported the fake hogs had died.

The case has garnered some attention because the SEC also charged the company’s former U.S.-based independent audit committee chairman, a rare move by the agency.

The SEC alleges that the former audit committee chairman, K. Ivan Gothner, and former U.S.-based chief financial officer Edward Pazdro, learned about the accounting fraud in China after the company merged with the U.S.-based company but failed to conduct any meaningful investigation or properly disclose it.

The SEC also charged four Chinese company executives with fraud. The case against the five former company executives and the former audit committee chairman is still ongoing.

Attorneys for Gothner and Pazdro have vigorously denied the charges, saying the SEC is wrongfully trying to punish them even though they tried to do the right thing and investigate the fraud as soon as they caught wind of it.

The settlement announced on Monday is subject to court approval. The company is settling without admitting or denying the charges.

The SEC said the US$18 million will be distributed to victims of the fraud.

— Sarah N. Lynch reports on financial regulation and financial crimes for Reuters from Washington, D.C.

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In testimony before the U.S. Senate’s agriculture committee, Commodity Futures Trading Commission chairman Gary Gensler was also expected to outline his agency’s plans to contain the fallout from the Peregrine Financial Group case, including a look at the role of self-regulatory organizations (SRO) that police much of the market.

"Although we do not know the full facts of what happened in this matter, the system failed to protect the customers of Peregrine," Gensler said in prepared testimony. "Just like the local police cannot prevent all bank robberies, however, market regulators cannot prevent all financial fraud.

"Nevertheless, we all must do better."

The stunning downfall of Peregrine, or PFGBest, and its founder, Russell Wasendorf Sr., dealt a new blow to confidence in the futures industry, just months after MF Global Holdings’ bankruptcy, which left customers with a $1.6 billion shortfall and which is still being investigated (all figures US$).

Some of the fiercest criticism has been leveled at the National Futures Association (NFA), the first-line regulator that oversees dozens of smaller brokers, including PFGBest.

"The recent events at Peregrine highlight the necessity of looking at the decades-old system of SROs as first-line regulators and the commission’s role in overseeing SROs," Gensler said.

Two violations

The MF Global and PFGBest scandals have raised questions about the strength of federal commodities regulations designed to segregate and protect customer funds.

Wasendorf was arrested Friday and charged with lying to government regulators. The CFTC charged him with misappropriating customer money in a civil case. His firm filed for bankruptcy.

The NFA eventually uncovered the fraud after it sought to confirm PFGBest’s bank balance electronically. Prior to that, the NFA had conducted such checks through the mail. Wasendorf used a post office box to intercept the bank confirmation requests and forge the documents to conceal the missing customer money, according to an FBI complaint.

"I find that mind-boggling that no one at NFA could discern this," said Senator Tom Harkin, an Iowa Democrat.

Gensler said Tuesday the NFA had just completed an audit of the brokerage in May 2011 and was in the process of conducting another one over the past few weeks when the fraud was uncovered.

Senator Pat Roberts, the committee’s ranking Republican member, slammed Gensler for failing to provide market players a clear plan for a raft of derivatives reforms mandated by the 2010 Dodd-Frank law.

"And as if this weren’t bad enough, the CFTC isn’t doing a good job of what it was created to do — police the financial streets," Roberts added. He said Gensler was "too busy working on his inter-galactic plan" — a nod to the heavy slate of Dodd-Frank reforms — rather than implement reforms after MF Global.

New rules

On the same day as Wasendorf’s arrest, the CFTC moved to approve new customer protection rules requested by the NFA.

One such rule, named for MF Global’s former CEO, Jon Corzine, would require top executives at futures brokers to sign off on major withdrawals from customer accounts.

But Gensler said Tuesday that more steps need to be taken.

"I believe it is critical that we bring the regulators’ view of customer accounts into the 21st century," he said. "We must give the SROs and the CFTC direct electronic access to the FCM’s (futures commission merchants) bank and custodial accounts for customer funds, without asking the FCM’s permission."

He also noted that letters confirming bank balances "must come directly to regulators from banks and custodians."

Gensler hopes to incorporate the new NFA regulations approved last week into the commission’s own rules, so it can "directly enforce" the reforms.

Moreover, he called for giving customers more transparency into their holdings, as well as greater oversight for how SROs such as the NFA conduct examinations.

He said he has asked for a public roundtable to discuss what other customer protections are needed.

— Sarah N. Lynch and Alexandra Alper write for Reuters from Washington, D.C.

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