Marrone Bio Innovations Inc. is paying shareholders $12 million to settle a series of lawsuits filed over a 2-year-old accounting scandal, but the Davis biotech company could continue to face significant financial difficulties.
Announced Thursday, the settlement will resolve a group of class-action lawsuits filed by shareholders shortly after the accounting scandal – which revolves around allegations that sales figures were inflated – erupted in September 2014. Marrone Bio said its insurance companies will pay the settlement, which means the agreement will have “no adverse impact” on the company’s finances.
Nevertheless, the company’s financial problems persist. In a filing in U.S. District Court in Sacramento, a lawyer for the shareholders said the plaintiffs accepted the settlement in part because of Marrone Bio’s “tenuous financial position.” Michael McGaughey, a Palo Alto lawyer leading the litigation for the shareholders, said the company could run out of cash later this year, and there’s “substantial doubt” about Marrone Bio’s future.
The company made its own acknowledgment, in regulatory filings earlier this spring, of “substantial doubt” about its future. The doubt stems from the company’s cash reserves, which might fall below the minimums required under agreements with its lenders.
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Nevertheless, founder and Chief Executive Pam Marrone said the company is continuing to work on its recovery.
“We have a plan in place that we’re executing,” she said in an interview.
Asked about McGaughey’s prediction of a cash shortage, she said, “That’s their interpretation.” The company’s latest regulatory filing listed $28 million in cash.
Settling the shareholder suit represents a milestone, although individual plaintiffs could challenge the terms and court approval is needed to finalize the deal. Once the case is over, Marrone Bio will have resolved most of its regulatory and legal problems stemming from the accounting issue.
The company is still wrestling with the possible loss of its Nasdaq stock market listing because its share price has fallen below the $1 minimum. Marrone Bio has until Oct. 31 to resolve that Nasdaq matter.
Marrone Bio shares closed Thursday at 70 cents, up 3 cents. The settlement with the shareholders was announced after the market closed.
A maker of environmentally sensitive pesticides and other farm-related products, Marrone Bio was founded in 2006. Burdened by huge product-development costs, it has yet to turn a profit. But it was considered a promising company until it disclosed in September 2014 that it was investigating allegations of accounting irregularities.
The company eventually restated its earnings reports, erasing more than $6 million in revenue. Three months ago, a federal grand jury in Sacramento indicted former Chief Operating Officer Hector Absi on charges of deliberately inflating sales figures.
Prosecutors said Absi, who left the company in August 2014, gave some of Marrone Bio’s outside distributors “inventory protection” allowing them to sell products back to the company if they couldn’t find buyers. That wasn’t illegal, but keeping the arrangement secret from Marrone Bio’s accounting department broke the law, prosecutors said.
Absi, who moved to Las Vegas, has pleaded not guilty in U.S. District Court in Sacramento. He is free on bond.
The company paid a $1.75 million fine to the Securities and Exchange Commission to settle the agency’s investigation. As part of the settlement, Pam Marrone personally reimbursed the company $15,234 and former chief financial officer Donald Glidwell paid back $11,789. The sums represented incentive pay they earned based on the artificially inflated revenue.