LINCOLN, Neb. (DTN) -- A federal court denied four motions to dismiss a securities lawsuit filed against Archer Daniels Midland and four of its current and former executives in connection with irregular accounting practices revealed by the company.

The U.S. District Court for the District of Northern Illinois last week denied dismissal motions filed by ADM and its CEO Juan Luciano, now-former CFO Vikram Luthar, former vice chairman and CFO Ray G. Young, along with Vince Macciocchi, former president of nutrition and chief sales and marketing officer.

U.S. District Judge Thomas M. Durkin said in his opinion and order handed down on March 12 that he believed there is sufficient evidence for the case to continue.

"Two years after ADM began improperly accounting for the nutrition segment's transactions, ADM's board altered the compensation of its officers so that it was tied to the growth of the nutrition segment," Durkin wrote.

"In this way ADM's officers, including the four individual defendants in this case, directly benefited from the inaccurate accounting of the nutrition segment's profits. The individual defendants also took advantage of ADM's inflated stock price by selling millions of dollars' worth of ADM stock during this time period. By contrast, the individual defendants did not sell any ADM stock before the nutrition segment began to show inflated profits."

According to federal law, plaintiffs making the claims in the ADM case must show that the defendants made false statements with an intent to deceive.

"Here, although plaintiffs do not allege direct evidence that defendants knew the statements to the SEC (U.S. Securities Exchange Commission) about the accounting were false, the allegations of circumstantial evidence of their knowledge are strong," Durkin said.

ADM announced in 2023 it was reviewing internal accounting practices and suspended Luthar who resigned his post effective on Sept. 30, 2024.

The judge said there is evidence that ADM and its officers knew they were making alleged false statements about the performance of the company's nutrition segment.

"Two years after the false accounting practice was implemented, defendants changed their compensation structure to benefit from it," Durkin said in the opinion.

"Specifically, under the new structure, defendants' compensation was directly tied to the profits of the nutrition segment specifically, rather than that of ADM as a whole. This chain of events plausibly suggests a motive to at least maintain the fraudulent practice."

ADM did not respond to DTN's request for comment.

The U.S. Department of Justice launched an investigation in March 2024 focused on ADM's finances and issued subpoenas to current and former employees. When news of the accounting irregularities broke, ADM stock took a big hit.

A group of ADM investors filed a class action lawsuit on behalf of shareholders who purchased or acquired company common stock between April 30, 2020, through Jan. 22, 2024.

The shareholders alleged that ADM and its officers made "false or misleading" statements about the "performance and prospects of ADM's nutrition segment and its accounting practices."

In particular, the lawsuit said ADM made "positive statements" about that segment of the business as a "future profit-driver" for the company.

"Defendants also created the impression that the nutrition segment's growth would provide more diversification and earnings stability for ADM," the lawsuit said.

"This was an appealing strategy because the company's results were historically tied to the highly cyclical commodities market."

The shareholders allege that ADM's nutrition segment growth from 2020 to 2022 was "inaccurate and subject to improper accounting practices."

ADM announced on Jan. 21, 2024, that it placed Luthar on leave "pending an ongoing investigation" being conducted by "outside counsel" for ADM and the company board's audit committee.

"On this news, the price of ADM common stock declined by $16.23 per share, or approximately 24%, from $68.19 per share to close at $51.69 on Jan. 22, 2024," the lawsuit said.

Read more on DTN:

"ADM Shareholder Wants CEO Gone," https://www.dtnpf.com/…

Todd Neeley can be reached at todd.neeley@dtn.com

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