The U.S. Securities and Exchange Commission announced today that Baxter will pay an $18 million penalty over foreign exchange trading practices that misstated the company’s earnings.
In its annual report out today, Baxter said that it agreed to cease and desist from future violations, though it did not admit or deny the findings in the SEC’s administrative order.
Last year, the company settled a federal shareholders lawsuit over the matter for $16 million.
The SEC found that Baxter violated federal securities law from at least 1995 to 2019 by converting non-U.S. dollar amounts on its financial statements under a convention that was not following generally accepted accounting principles.
Starting in at least 2009, the company exploited the convention to enter into intra-company foreign exchange transactions solely to generate foreign exchange accounting gains or avoid foreign exchange accounting losses, according to the SEC.
Baxter spent $31 million for its internal investigation and related costs in 2021; it spent $23 million in 2020. The company said in early 2020 that the internal probe had found $276 million in overstated income over the years.
“It is critical that companies that identify wrongdoing proactively come forward and cooperate with the SEC staff,” said Paul Montoya, associate regional director of the SEC’s Chicago office.
“Baxter’s self-reporting and substantial cooperation in working with the staff in this complex investigation was an important consideration in assessing the appropriate sanctions for this case,” Montoya said in an SEC news release.
Scott Bohaboy and Jeffrey Schaible, respectively Baxter’s former treasurer and assistant treasurer, also settled with the SEC — with the two agreeing to avoid future violations without admitting or denying wrongdoing. The SEC claims that Schaible and others working under his direction was primarily responsible for the transactions, while Bohaboy supposedly failed to investigate the treasury department’s consistent gains.
Bohaboy will pay a $125,000 civil penalty. Schaible agreed to pay a $100,000 civil penalty, disgorgement of $76,404 and prejudgment interest of $12,955. In addition, the settlement creates a fair fund for distributing settlement proceeds to harmed investors.
