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The Diamond Foods snack food company has reached a settlement in a class action lawsuit over alleged accounting improprieties.
By Mateusz Perkowski Capital Press

Published on August 27, 2013 10:27AM

The Diamond Foods snack food company has reached a tentative deal to settle a class action lawsuit over alleged accounting improprieties.

The public company, previously a walnut farmers’ cooperative, has agreed to pay investors $11 million and issue 4.45 million shares of its stock, which is currently trading at about $21 per share.

The proposed deal must still be approved by a federal court.

Some investors filed legal complaints against Diamond Foods in 2011 after an investment consulting firm raised concerns about how the company was accounting for walnut payments.

According to the complaints, Diamond Foods tried to delay paying walnut farmers to hide the crop’s total cost from investors, thus artificially boosting its profits and its share price.

An internal investigation by the corporation’s board of directors disclosed that about $80 million worth of walnut payments were reported during the wrong time period.

The company's CEO, Michael Mendes, and chief financial officer, Steven Neil, were removed from the positions and the accounting controversy sunk a planned takeover of the Pringle potato chip brand from the Proctor & Gamble Co.

Investors claimed the alleged accounting improprieties greatly devalued the price of Diamond Foods' stock, which hit a peak of more than $90 per share shortly before the controversy was made public.

In May, a federal judge certified the lawsuits against Diamond Foods as a class action, which allowed other investors to join in the litigation.

Certification of a class action lawsuit is also considered to put strong pressure on a defendant company to settle and avoid the potentially astronomic damages that could result from a trial.

“We believe this proposed settlement eliminates the burden of further time, expense and risk related to the class action, allowing the Diamond team to move fully forward focused on expanding the reach of our leading brands and executing on our strategic and operational initiatives for growth,” said Brian Driscoll, the company’s current CEO, in a statement.

A “substantial portion” of the $11 million in cash will likely be paid by the firm’s insurers, the statement said.

The company also announced that it expected full year sales of $850 million to $865 million for 2013, down from $980 million in fiscal 2012.

Last year, Diamond Foods settled another class action lawsuit for $3.45 million in which a consumer accused the company of false advertising for promoting the “heart health” benefits of walnuts.


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