By Karen M. Leser-Grenon, Esquire
SFMS, along with co-counsel, is representing the United Food and Commercial Workers Union and Participating Food Industry Employers Tri-State Pension Fund (“UFCW Tri-State”) which, in December 2011, filed a shareholder derivative complaint on behalf of nominal defendant Diamond Foods, Inc. (“Diamond” or the “Company”) against various members (past and present) of the Company’s Board of Directors and various officers. The complaint is filed in San Francisco Superior Court and alleges breach of fiduciary duty, abuse of control, gross mismanagement and unjust enrichment. In February 2012, the complaint was consolidated with other similar actions and amended to include Diamond’s auditor, Deloitte & Touche LLP, on theories of negligence and breach of contract. Diamond processes, markets and distributes snack products, as well as engages in its historical walnut business. In the past few years, Diamond began to acquire other snack brands, including, among others, Pop Secret and Kettle Brand chips. In April 2011, Diamond entered into an agreement with Procter & Gamble to purchase Pringles potato chips. The complaint alleges significant accounting problems in the way that Diamond allocated its walnut sales to walnut growers on its financial statements. Specifically, the complaint alleges that Diamond issued “momentum” or pre-harvest payments to walnut growers for the expected 2011 crop. The complaint also alleges that, in violation of Generally Accepted Accounting Principles, the Company allocated payments due to growers for the prior year into the next fiscal year for purposes of creating the appearance of much healthier financial statements. Diamond’s Audit Committee (“Audit Committee” or “Committee”) began an internal investigation of the accounting problems; then, in November of 2011, less than three weeks after the Committee began its investigation, one of the Committee members, director Joseph Silveira, committed suicide. In January of 2012, the Wall Street Journal reported that federal prosecutors in the U.S. Attorney’s Office in San Francisco were working together with the U.S. Securities and Exchange Commission to investigate the treatment of payments by Diamond to walnut growers. The Audit Committee released the results of its investigation in February 2012, and concluded that certain payments in the amount of $20 million and $60 million “were not accounted for in the correct periods.” On February 15, 2012, Proctor and Gamble announced that it would no longer proceed with its intended acquisition of Diamond.
Also, currently pending is a federal securities case against Diamond and certain of its officers and directors, as a result of the Company’s false and misleading statements to investors.