Diamond Foods Inc. agreed to pay $5 million to settle charges by the Securities and Exchange Commission that it engaged in accounting fraud.

Diamond Foods Inc. agreed to pay $5 million to settle charges by the Securities and Exchange Commission that it engaged in accounting fraud. (Glenn Koenig / Los Angeles Times / January 21, 2006)

Snack-food maker Diamond Foods Inc. agreed to pay $5 million to settle allegations that the company cooked its books.

The Securities and Exchange Commission alleged Thursday that Diamond boosted its earnings and stock price in 2010 and 2011 by systematically underreporting payments to walnut growers.

The SEC also charged two former Diamond executives.

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Michael Mendes, the former CEO, agreed to pay $125,000 to settle a charge that he should have known the accounting was bogus. Mendes neither admitted nor denied guilt.

The SEC alleged that Steven Neil, Diamond’s former finance chief, orchestrated the scheme. The case against Neil is continuing.

Soaring walnut prices in 2010 forced Diamond to substantially increase payments to farmers, according to the SEC. But booking the extra costs would have damaged the earnings of a company that had become an investor favorite.

Neil responded with “a scheme to have it both ways,” according to the SEC. The company made special payments to the walnut growers but delayed recording the outlays on its financial statements until later accounting periods, according to the SEC. Neil later misled the company’s auditors about the payments, the SEC alleged.

Neil’s attorney, Michael Shepard, disputed the SEC allegations.

“Steve Neil did nothing wrong,” Shepard said. “He followed long-standing company practice and accounting treatment approved by the company’s outside auditors. He looks forward to prevailing at trial.”

A spokesman for Mendes said the former CEO was charged with negligent conduct rather than the more serious allegation of fraud. He declined further comment.

The company did not respond to an email seeking comment.

Diamond fired Mendes and Neil in early 2012, and restated its earnings, after an internal probe concluded that the accounting was improper.

An aggressive acquisition strategy boosted the company’s stock price from $20 at the end of 2008 to more than $92 by September 2011. It fell as low at $12.98 a little more than a year later.

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