Diamond Foods, Inc.

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Executive summary Diamond Foods, Inc. was founded in 1912 and was publicly traded in 2005 as a distributor of potato chips, snack nuts, popcorn, shell nuts, and culinary nuts. Its brands include: Kettle Brand Chips, Emerald snack nuts, Pop Secret popcorn, and Diamond of California nuts (Gujarathi, 2015, p. 47). The company motto was always “bigger is better,” which was implemented by former CEO Michael Mendes (Mendes) to meet high performance expectations and keep up with the competition in the snack industry (Gujarathi, 2015, p. 50). Around late 2009, questionable behavior of fraud began to occur at Diamond leaving the company in a great amount of loss. Mendes and CFO Steven Neil (Neil) pressured Diamond’s accounting department to…show more content…
After having to restate both its 2010 and 2011 financials in 2012, it was discovered that the company was operating at a net loss of $86,336,000 and earnings (loss) per share of $3.98. During 2012 the company’s stock price dropped significantly by about 54 percent from $21.50 in early November to $12.50 in late November (U.S. District Court for the Northern District of California, 2012, In re Diamond Foods Inc., Securities Litigation: Complaint). On November 14th, 2012 Diamond restated its financial statements which reduced its 2012 first, second, and third quarter earnings. This also reduced the company’s 2011 and 2010 earnings by 57% to $29 million and 46% to $23 million respectively (Mintz, 2013). Mendes and Neil with the assistance from Deloitte had such a tight control, making the ability to detect the fraud difficult. This caused the fraud to be concealed, which led to serious financial implications, and the need to restructure the company’s top management. Description of the fraud Several types of fraud occurred at Diamond Foods, Inc. that led to manipulation of their reported earnings and stock price: improper disclosures in the financial statements, understating costs, and aggressive earnings management. Improper disclosures in financial statements There were three major inaccurate disclosures in Diamond’s quarterly and annual financial statements that inflated its earnings and provided false information to investors, the public,
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