PGG Wrightson's cornerstone shareholder Agria Corp and its executive chair Alan Lai have settled with US authorities over claims the agriculture investment firm hid losses from investors through fraudulent accounting and overstated the value of its New York-listed stock.
The US Securities and Exchange Commission investigation triggered New Zealand's Overseas Investment Office to investigate whether Agria and its principals continued to meet the 'good character' necessary to pass foreign investment hurdles, given its controlling stake and directorships of rural services firm Wrightson.
Agria was de-listed from the New York Stock Exchange last year after the NYSE found evidence the firm had inflated its share price.
In Washington overnight, the SEC said it had settled with Agria, which had agreed to pay US$3 million ($4.3m) for fraudulent accounting between 2010 and 2013, primarily around how it overstated the value of stock and Chinese land use rights.
Separately, Lai, who chaired Wrightson up until October 29 of this year, agreed to pay a US$400,000 penalty and be barred from acting as a director or officer of a public company for five years for manipulating prices in Agria's NYSE-listed shares in an effort to keep them from being delisted in 2013. Agria and Lai neither admitted nor denied the charges.
"Agria's fraudulent accounting hid from investors the significant loss it sustained when it divested its principal operation in China, and Mr Lai artificially inflated the share price to maintain Agria's NYSE listing," said Charles E Cain, who leads the SEC enforcement division's Foreign Corrupt Practices Act unit.
"Disclosure of accurate information is vital to the integrity of our markets, and both Agria and Mr Lai have been appropriately held to account for their deceptive misconduct."
Agria also undertook to cooperate with any SEC investigations.
The US$3.4m was within Agria's US$3.8m provision it estimated the settlement would cost, although that also included legal costs. Agria had said it would tell the OIO about any settlement once the terms are agreed in principle.
Wrightson's independent directors reconvened a committee to monitor the OIO review of Agria's 'good character' status.
Agria indirectly owns 50.2 per cent of Wrightson through Agria (Singapore) which it gained through a $144m partial takeover in 2011. It initially came on as a cornerstone investor in 2009, helping to re-capitalise the firm when its debt blew out following the failed merger with Silver Fern Farms.
When Agria bought its initial 13 per cent stake in 2009, Wrightson's offer document noted Agria was facing a class action in the US over claims its US registration statement contained false statements at the time of its 2007 initial public offering. The lawsuit was subsequently dismissed.
Wrightson accounts for most of Agria's business, and the firm expects to recognise a US$92m capital gain from the New Zealand company's sale of its seeds division to Danish cooperative DLF Seeds, although the Commerce Commission, whose approval is needed, has concerns about potential competition issues arising from the sale.
The future of Wrightson remains unclear with First NZ Capital retained to review the rest of the rural services firm's businesses.
Wrightson shares last traded at 53 cents and have dropped 12 per cent so far this year, compared to a 0.3 per cent decline in the S&P/NZX All Index over the same period.