Bedrock FOI - NOTV reports a live primate subpoena and a restatement. FMS and STT extend DOJ/SEC monitorship
Plus CRTO and DNB receive thorny comment letters
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Filings from the week of February 12 - February 22.
NOTV issued a restatement, received a subpoena related to the importation of live primates and is being faced with a USDA investigation. Recidivists, STT and FMS report delays and extensions to their SEC/DOJ monitorship programs.
Read the full post on our blog here.
SEC Comment Letters
CRITEO SA (CRTO) | 10-K SEC Comment | $2B - CRTO has been calling an adjusted gross margin number “Revenue ex-TAC” and the SEC is having none of it!
DUN & BRADSTREET HOLDINGS INC (DNB) | 10-K SEC Comment | $8.5B - The SEC noted, “the operating expenses line item represents only a portion of your operating expenses” and asked that DNB retitle it. Not a great look for DNB.
Ebay and FirstCash were about a month later than usual in filing their 10-Ks. This is Ebay’s second deviation from timing norms. They filed an NT 10-Q for Q2 2021. Read more here.
Look out for an upcoming new feature, highlighting filing delays.
INOTIV INC (NOTV)
10-Q | Market Cap: $800M
NOTV recently restated their Q2 2021 reporting “due to an error in accounting for certain tax attributes related to an acquisition”. [1]
NOTV’s stock price has rebounded, up by nearly 30% from the 17th.
NOTV acquired Envigo in September 2021, a provider of animals for lab tests with over 1,000 employees. The USDA inspected Envigo’s facilities during 2021and “issued inspection reports with findings of non-compliance” and intends to conduct a formal investigation. In their own words, the “inspections and/or the investigation could lead to enforcement action”. [2]
The DOJ served Envigo a subpoena in July 2021. The subpoena relates to the importation of “live non-human primates originating from or transiting through China, Cambodia and/or Vietnam”. [3]
Envigo is also being sued for violations of California labour laws. [4]
NOTV pays consulting fees to a management consulting firm of which their CEO, Robert Leasure, is the managing partner and leases office space from a company owned by their Chief Strategy Officer. [5]
“The Company’s management, together with the Audit Committee, determined that the Company’s financial statements and other financial data as of and for the quarterly period ended June 30, 2021 included in the Original Quarterly Report should be restated and the Company issued restated financials for the period in the Form 10-Q/A filed on December 21, 2021.”
“During the period from July through December 2021, one of Envigo’s U.S. facilities was inspected on several occasions by the U.S. Department of Agriculture (“USDA”). USDA issued inspection reports with findings of non-compliance with certain USDA laws and regulations. Envigo formally appealed certain of the findings. USDA has indicated it intends to conduct a formal investigation. The inspections and/or the investigation could lead to enforcement action resulting in penalties that could include a temporary restraining order or injunction, civil and/or criminal penalties, and/or license suspension or revocation.”
“On June 15, 2021, Envigo Global Services, Inc., a subsidiary of the Company acquired in the Envigo acquisition, was served with a grand jury subpoena issued by the Department of Justice in Miami, Florida requiring the production of documents related to the importation into the United States of live non-human primates originating from or transiting through China, Cambodia and/or Vietnam from April 1, 2014 through March 28, 2019.”
“Envigo is a defendant in a purported class action and a related action under California’s Private Attorney General Act of 2004 (“PAGA”) brought by Jacob Greenwell, a former employee of Envigo, on June 25, 2021 in the Superior Court of California, Alameda County. The complaint alleges that Envigo violated certain wage and hour requirements under the California Labor Code.”
“On January 12, 2019, the Board of Directors elected Robert Leasure, Jr. as the Company’s President and Chief Executive Officer and as a director of the Company. Mr. Leasure serves as the managing partner and president of LS Associates LLC (“LS”), a management and consulting firm formed in 2002. The Company has a consulting agreement with LS by which we paid consulting fees of $86,000 and $64,000 in fiscal 2021 and fiscal 2020, respectively. The Company received consulting services from LS prior to Mr. Leasure being elected as CEO and continues to use services of the consulting firm on an as needed basis. The Company leased space from SWL Properties, LLC. SWL Properties is owned by Dr. John E. Sagartz, our Chief Strategy Officer…and Joseph E. Flynn, our former Chief Commercial Officer.”
FRESENIUS MEDICAL CARE AG & CO KGAA (FMS)
20-F | Market Cap: $19B
FMS has had frequent run-ins with regulators over the past few years, including settlements with the SEC and DOJ in 2019.
This quarter they disclosed that the monitorship program put in place as part of the SEC/DOJ settlement has “faced delays” and they are working to complete obligations in 2022. [1]
In the past, FMS also received subpoenas from the U.S. Attorney for Massachusetts in 2020 related to its operation of urgent care operations and received a subpoena related to Quest Diagnostics’ Shiel operations in 2015. [2]
FMS is dealing with “post-U.S. Foreign Corrupt Practices Act (“FCPA”) review matters on various levels” but “sold approximately €6 M of dialysis products to independent Iranian distributors” during the year.
Three management board members resigned during the year. This was ostensibly “part of the transformation of the Company’s operating model”. [3]
Revenues stayed constant year-over-year but would have decreased if not for the contributions from acquisitions. [4]
"Due in part to COVID-19 pandemic restrictions, the monitorship program faced certain delays, but the Company is working to complete all its obligations under the resolution with the DOJ and SEC in 2022."
"On August 21, 2020, FMCH was served with a subpoena from the United States Attorney for the District of Massachusetts requesting information and documents related to urgent care centers that FMCH owned, operated, or controlled as part of its ChoiceOne and Medspring urgent care operations prior to its divestiture of and exit from that line of business in 2018"…."On December 12, 2017, FMCH sold to Quest Diagnostics certain Shiel operations that are the subject of this Brooklyn subpoena, including the misconduct reported to the United States Attorney. Under the Quest Diagnostics sale agreement, FMCH retains responsibility for responding to the Brooklyn investigation and for liabilities arising from conduct occurring after its 2013 acquisition of Shiel and prior to its sale of Shiel to Quest Diagnostics."
"Agreements with members of the Management Board who resigned from office at the end of the Fiscal Year As part of the transformation of the Company’s operating model, the Management Board members Dr. Olaf Schermeier, Mr. Kent Wanzek and Mr. Harry de Wit resigned from office as per the end of the Fiscal Year and, hence, prior to the expiry of their terms that were originally agreed."
Health care service revenue increased by 1% (+2% at Constant Exchange Rates), largely due to contributions from acquisitions (+2%) and organic growth (+1%) despite COVID-19 Related Impacts, partially offset by the effect of closed or sold clinics (-1%) and a negative impact resulting from foreign currency translation (-1%)."
STATE STREET CORP (STT)
10-K | Market Cap: $37B
Similar to FMS, STT’s DOJ monitoring period has been extended into 2022. The period was originally supposed to extend to September 2019. [1]
STT is a recidivist offender with the SEC as seen in 2019, 2017, 2016, 2012, 2010 and 2005. At this point, a year without a new SEC investigation constitutes a surprise.
STT released $33M of credit reserves in 2021. Comparatively, STT added $88M to reserves during 2020. The result is in positive impact of $121M on net income year-over-year. [2]
“...we entered into a deferred prosecution agreement with the Department of Justice and the United States Attorney for the DOJ under which we agreed to retain an independent compliance and ethics monitor for a term which has now been extended to 2022 (subject to further extension) to, among other things, review and monitor the effectiveness of our compliance controls and business ethics and make related recommendations, and in September 2017, we entered into a settlement agreement with the SEC that also requires us to retain an independent ethics and compliance consultant.”
“In 2021, we released $33 million of credit reserves related to loans and financial assets held at amortized cost and off-balance sheet commitments based on the CECL methodology, reflecting observed and expected improvements in both credit quality and economic outlook. This compares to a $88 million provision for credit losses in 2020 based on the CECL methodology, and $10 million in 2019, which was under the incurred loss model.”
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