US Justice Department probes ADM's ethanol trading desk, sources say
Adds share price reaction in paragraph 9
By Chris Prentice and P.J. Huffstutter
NEW YORK/CHICAGO, March 13 (Reuters) -The U.S. Justice Department is investigating Archer-Daniels-Midland's ADM.N ethanol trading operation as part of a broader probe of the commodities giant's accounting practices, according to three people with knowledge of the matter.
The U.S. Attorney's Office for the Southern District of New York (SDNY) is probing whether ADM improperly accounted for hedges in its ethanol trading unit, the three sources said.
ADM, a $28 billion company that makes animal feed, sweeteners and other products, is also a large producer of ethanol, a biofuel made from corn.
ADM this week confirmed Reuters reports that the Justice Department is investigating accounting practices related to ADM's Nutrition unit and that current and former employees had received grand jury subpoenas relating to that probe.
The Chicago-based company said the investigation was "focused primarily" on the Nutrition business. The DOJ probe into ADM's ethanol trading operation was not previously reported.
The additional scrutiny indicates that the Justice Department is taking a broader look at ADM's accounting practices than previously reported - another challenge for the company as it seeks to restore investor confidence.
A spokesperson for ADM said the company declined to comment on the government investigation beyond what it disclosed on Tuesday. A spokesperson for SDNY also declined to comment.
ADM said this week it was cooperating with authorities. Government investigations are not evidence of wrongdoing and do not necessarily result in charges.
ADM shares pared gains on Wednesday to close up 2% at $58.27. They have dropped about 15% since the firm disclosed in late January that it had suspended its chief financial officer and was delaying financial results amid an internal probe into its Nutrition division accounting. The company's investigation was prompted by a Securities and Exchange Commission (SEC) inquiry, ADM said at the time.
The company said the SEC inquiry focused on sales between the Nutrition division and its Agricultural Services & Oilseeds and Carbohydrate Solutions units.
On Tuesday, ADM corrected financial transactions between the units for its 2018 to 2023 financial statements, saying it had overstated the Nutrition unit's operating profit. It said the changes did not impact its overall results.
ADM competitors have sued the company in recent years over its ethanol business.
One high-profile lawsuit brought by Switzerland's AOT Holding alleges that ADM manipulated the price of ethanol to profit from short positions it was holding in the derivatives market. ADM has denied the allegations and is fighting the case, court records show.
According to a January 2023 federal court filing in that case, an ADM employee from the ethanol trading unit disclosed he violated ADM's accounting policy related to hedging treatment.
The Commodities Futures Trading Commission (CFTC) and CME Group CME.O, which lists ethanol futures, had ongoing inquiries into matters raised in the AOT case as of 2019, according to a 2023 court filing and to a separate source familiar with the matter.
The status of those inquiries was not immediately clear. AOT declined to comment. Spokespeople for the CFTC and CME Group declined to comment.
Reporting by Chris Prentice in New York and P.J. Huffstutter in Chicago
Editing by Caroline Stauffer, Michelle Price and Matthew Lewis
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