Former Chief Operating Officer of Davis Bio-Pesticide Company Indicted for Securities Fraud
SEC Files Separate Civil Complaint
SACRAMENTO, Calif. — Hector Absi, 47, of Las Vegas, Nevada, was arrested today by FBI agents at his home in Las Vegas. He is charged in a 16-count indictment, unsealed today, that was returned by a federal grand jury in Sacramento on February 11. The indictment charges Absi with conspiracy to commit mail fraud, wire fraud, and securities fraud; substantive counts of mail, wire, and securities fraud; and with other securities-related charges, United States Attorney Benjamin B. Wagner announced.
According to court documents, Absi is the former head of the sales department of Marrone Bio Innovations Inc. (MBI), a company that developed and sold “bio-based” pesticides and is headquartered in Davis, California. Absi also served as MBI’s Chief Operating Officer from January 2014 until his resignation in August 2014. MBI is a publicly traded company; its stock trades on the NASDAQ exchange under the ticker symbol “MBII.” As a publicly traded company, it is required to file quarterly and annual reports with the Securities and Exchange Commission (SEC). In its reports, MBI stated that it recorded revenue in accordance with generally accepted accounting principles (GAAP).
The indictment alleges that, in order to increase sales of MBI products, Absi sold MBI products to customers with side agreements that offered “inventory protection,” under which MBI agreed to either repurchase the product from the customer or extend the terms of payment if the customer was still in possession of the product after a specified time period. Under GAAP, revenue from sales that include such agreements cannot be recognized on the company’s books. The indictment alleges that between March 2013 and July 2014, Absi conspired with at least one other MBI employee to misrepresent to MBI’s accounting department, its external auditors, and the investing public that MBI had made sales under such terms. By concealing the practice, Absi caused MBI to report a doubling of its revenue in 2013 in comparison to 2012. Absi also allegedly conspired with others to backdate the delivery of certain shipments of MBI’s products to enhance MBI’s reported revenues for the quarter. Absi received a performance-based bonus and exercised stock options during a time when MBI’s inflated revenue figures were being reported.
“It is critical to the integrity of the securities markets that we criminally prosecute those who act to profit by deceiving those markets and the investing public who rely on the accuracy of publicly filed reports,” said U.S. Attorney Wagner. “I am pleased that we have been able to coordinate effectively with the SEC in this matter.”
“We thank the SEC for their partnership in this successful investigation. Such collaboration is essential to the success of securities fraud investigations and ultimately protecting the integrity of the securities market,” said Assistant Special Agent in Charge Manuel Alvarez of the Federal Bureau of Investigation’s Sacramento field office. “Securities fraud is something most associate with Wall Street, not our region; however, our region is home to many successful, publicly traded companies. Unfortunately, this success also attracts greed-based crime and we will work with our partners to root out those who seek to deceive investors by manipulating revenue data.”
“We allege that Marrone Bio misled investors to make itself look like a fast-growing new public company,” said Jina L. Choi, Director of the SEC’s San Francisco Regional Office. “Public companies and their officers should know better that taking shortcuts to recognize revenue in the near term is harmful to investors and can be damaging to a company’s long-term success.”
This case is the product of an investigation by the Federal Bureau of Investigation. Assistant United States Attorney Todd A. Pickles is prosecuting the case.
The Securities and Exchange Commission has also conducted an investigation into the conduct of Hector Absi while he was an officer of MBI. Today it filed a civil complaint against Absi in the U.S. District Court for the Eastern District of California, alleging that Absi violated the Securities Act of 1933, and the Securities Exchange Act of 1934, and federal rules issued under the Exchange Act, and seeking an injunction against Absi, disgorgement of wrongfully obtained benefits, and civil penalties.
If convicted, Absi faces a maximum statutory penalty of 25 years in prison and a $5 million fine. Any sentence, however, would be determined at the discretion of the court after consideration of any applicable statutory factors and the Federal Sentencing Guidelines, which take into account a number of variables. The charges are only allegations; the defendant is presumed innocent until and unless proven guilty beyond a reasonable doubt.