Diageo to pay £3.84 million to settle SEC charges it concealed liquor overshipments

By Jonathan Stempel

(Reuters) - Diageo Plc <DGE.L> agreed to pay a $5 million(£3.84 million) civil fine to settle U.S. Securities and Exchange Commission charges that the global liquor company quietly pressured distributors to buy excess inventory to boost its results in a flagging market.

The London-based company - whose brands include Johnnie Walker Scotch whisky, Smirnoff vodka, Tanqueray gin and Guinness beer - did not admit or deny wrongdoing, but agreed to cease and desist from further violations, the SEC said on Wednesday.

A Diageo spokeswoman said in a statement that the company was pleased to settle, and was "committed to maintaining a robust and transparent disclosure process."

According to the SEC, Diageo failed to publicly disclose how employees at its most profitable unit, Diageo North America, pushed distributors in its 2014 and 2015 fiscal years to buy more wine and spirits than they needed.

The SEC said this "overshipping" enabled Diageo to report higher growth in operating profit and net sales than analysts expected, but was unsustainable because distributors would likely eventually push back on orders, and some did.

According to the regulator, Diageo misled investors by leaving them with the impression that normal customer demand was helping fuel its reported growth.

Melissa Hodgman, an associate director in the SEC's enforcement division, said in a statement that Diageo created a "misleading picture of the company's financial results and its ability to meet key performance indicators."

Diageo had disclosed an SEC probe into its distribution and public disclosure practices in July 2015. It said last month it expected the outcome to have an immaterial effect on results.

(Reporting by Jonathan Stempel in New York; Additional reporting by Siddharth Cavale in Bengaluru; editing by Jonathan Oatis)