Posted: Thursday, December 06, 2012 12:00 PM
Research company says tomato firm acts like Enron
By MATEUSZ PERKOWSKI
The parent company of a major California tomato buyer has been accused of facing financial collapse by a prominent investment researcher.
Olam, an international processor and distributor of agricultural goods, has responded to the accusation by suing the Muddy Waters research firm for defamation in Singapore, where its stock is listed.
Muddy Waters focuses on short selling, or earning a profit from the falling stock price of companies it has bet against.
The investment research firm compares Olam to defunct energy trader Enron, alleging the agricultural company has been using accounting shenanigans to create the appearance of profits.
"We believe the single biggest factor in Enron's collapse was its use of accounting techniques similar to Olam's value gains," according to Muddy Waters' report.
The price of Olam's stock fell more than 10 percent in the week after Carson Block, the investment firm's research director, spoke about the agricultural trader's outlook at a Nov. 19 financial conference.
Olam has called the allegations "false and misleading," saying the company doesn't risk insolvency, strictly follows accounting rules and has a successful business model.
The company's tomato processing arm -- Olam Tomato Processors of Lemoore, Calif. -- is offered by Muddy Waters as an example of alleged accounting tricks.
Previously known as SK Foods, the tomato processor was taken over by Olam following its bankruptcy in 2009.
Earlier this year, the company's ex-CEO, Scott Salyer, pled guilty to federal charges of racketeering and price fixing for paying kickbacks to purchasing officers at major food companies. He is scheduled for sentencing in January 2013.
According to Muddy Waters, Olam recognized a large accounting profit from the acquisition by claiming that it paid much less for SK Foods than the assets were worth.
The investment firm alleges that Olam overvalued the tomato processor's worth by $50 million and that the takeover is part of a broader pattern of using expensive acquisitions to book accounting gains.
Olam countered that "this could not be further from the truth" and said it has bought assets at a "deep discount to their fair value" due to opportunities presented by the financial downturn.
Muddy Waters also raised questions about product quality at the tomato processing plant, citing interviews with several workers who claimed equipment was filthy and frequently moldy.
The workers also allegedly told Muddy Waters' investigators that a "large quantity" of canned tomatoes had been put "on hold" in a warehouse, according to the report.
Olam did not specifically address the product quality allegations in its response report, but said the company has "completely changed the business" by increasing its "internal farming capabilities," making various improvements and investments and diversifying into more value-added and organic product lines.