UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES ACT OF 1933

Release No. 10977 / September 3, 2021

SECURITIES EXCHANGE ACT OF 1934

Release No. 92874 / September 3, 2021

ACCOUNTING AND AUDITING ENFORCEMENT

Release No. 4248 / September 3, 2021

ADMINISTRATIVE PROCEEDING

File No. 3-20523

In the Matter of

THE KRAFT HEINZ CO.,

and

EDUARDO PELLEISSONE,

Respondents.

CORRECTED ORDER INSTITUTING CEASEAND-DESIST PROCEEDINGS, PURSUANT 

TO SECTION 8A OF THE SECURITIES ACT 

OF 1933 AND SECTION 21C OF THE 

SECURITIES EXCHANGE ACT OF 1934, 

MAKING FINDINGS AND IMPOSING A 

CEASE-AND-DESIST ORDER

I.

The Securities and Exchange Commission (“Commission”) deems it appropriate that

cease-and-desist proceedings be, and hereby are, instituted against The Kraft Heinz Co.

(“KHC”) and against Eduardo Pelleissone (“Pelleissone”), pursuant to Section 8A of the 

Securities Act and Section 21C of the Exchange Act.

II.

In anticipation of the institution of these proceedings, KHC and Pelleissone (collectively 

“Respondents”) have submitted Offers of Settlement (the “Offers”) which the Commission has 

determined to accept. Solely for the purpose of these proceedings and any other proceedings

brought by or on behalf of the Commission, or to which the Commission is a party, and without

admitting or denying the findings herein, except as to the Commission’s jurisdiction over them and 

the subject matter of these proceedings, which are admitted, and except as provided herein in 

Section V, Respondents consent to the entry of this Order Instituting Cease-And-Desist 

Proceedings Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act,

Making Findings and Imposing a Cease-And-Desist Order (“Order”), as set forth below.
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III.

On the basis of this Order and Respondents’ Offers, the Commission finds1 that:

Summary

1. This matter concerns a multi-year expense management scheme by KHC’s

procurement division to improperly reduce KHC’s cost of goods sold and achieve cost savings that 

were externally touted to the market and internally tied to performance-based targets. The 

misconduct resulted in KHC reporting inflated earnings before interest, taxes, depreciation and 

amortization (“EBITDA”), a key performance metric for investors. From the fourth quarter of 

2015 through the end of 2018 (the “Relevant Period”), procurement employees negotiated 

agreements with numerous suppliers to obtain upfront cash payments and discounts, in exchange 

for future commitments to be undertaken by KHC, while improperly documenting the agreements 

in ways that caused the company to prematurely and improperly recognize the expense savings.

2. In accordance with accounting principles generally accepted in the United States

(“Generally Accepted Accounting Principles” or “U.S. GAAP”), if the upfront cash and

discounts are tied to future commitments, then the expense savings must be recognized over the

period the future obligations are satisfied. Procurement division employees, however, negotiated 

and maintained false and misleading supplier contracts that made it appear as if expense savings 

were provided in exchange for past or same-year events performed by KHC, when, in reality, 

they were upfront payments in exchange for a future benefit from KHC, in order to improperly

recognize costs savings prematurely.

3. Over the Relevant Period, KHC entered into approximately 59 transactions which 

were improperly recognized as a result of the false and misleading documentation negotiated and 

generated by procurement division employees. Had these transactions been properly documented 

and accounted for, KHC’s cost of goods sold during that period would have been approximately

$50 million higher than reported.

4. These misleading transactions, along with numerous other misstated accounting 

entries, led KHC, in June 2019, to restate its financial statements on Form 10-K. The restatement 

included financial data reported for fiscal year (“FY”) 2015, as well as the financial statements 

contained in Forms 10-Q and 10-K for FYs 2016 and 2017 and the first three quarters of FY 2018

that were filed with the Commission. KHC corrected a total of $208 million in cost savings 

arising from 295 transactions, and also corrected its Adjusted EBITDA during the relevant

period, as reflected in the restatement.

5. Pelleissone, KHC’s then Chief Operating Officer and Global Head of Operations,

was presented with several warning signs indicating that expenses were being managed through 

manipulating supplier agreements, imposed pressures on the procurement division to deliver 

unrealistic savings targets, and, as a member of the company’s disclosure committee,

 1 The findings herein are made pursuant to Respondents’ Offers of Settlement and are not binding on any other person

or entity in this or any other proceeding.
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unreasonably approved KHC financial statements that he should have known were materially false 

and misleading.

6. A procurement executive who reported to Pelleissone (“Procurement Executive”), 

managed the procurement division, approved certain of KHC contracts with suppliers, and had 

sub-certification responsibilities in 2018. Despite numerous warning signs that should have 

alerted him that procurement division employees were circumventing KHC’s internal controls in 

order to achieve cost savings targets, the Procurement Executive approved and failed to prevent

several supplier contracts that masked the true nature of the underlying transactions. The 

Procurement Executive also should have known that this false and misleading contract 

documentation was provided to KHC’s finance and controller groups, thus causing KHC to

prematurely recognize cost savings in contravention of U.S. GAAP.

RESPONDENTS

7. KHC is a food and beverage manufacturing company co-headquartered in 

Chicago, Illinois, and Pittsburgh, Pennsylvania. The company has a class of shares registered 

with the Commission pursuant to Exchange Act Section 12(b), which trades on NASDAQ under

the symbol “KHC.” KHC was created in July 2015 through the merger of public company Kraft

Foods Group Inc. (“Kraft”) with and into private company H.J. Heinz Co. (“Heinz”).

8. Pelleissone, age 47, resides in Chicago, Illinois. Pelleissone was KHC’s Global

Head of Operations and Chief Operating Officer between July 2015 and November 2018, and its

Head of Strategic Projects from November 2018 until June 2019, when he left the company.

During the period of 2016 through 2018, Pelleissone served as a member of KHC’s disclosure

committee, which was tasked with reviewing and affirming the accuracy and completeness of the

company’s quarterly and annual filings. Before the merger with Kraft, Pelleissone was the

Global Head of Operations for Heinz. Pelleissone is currently the president of operations in a

regional subsidiary of a different publicly traded company.

FACTS

Background

9. Following the Kraft-Heinz merger in July 2015, newly-formed KHC made

concerted efforts to eliminate redundancies and reduce operational costs. As part of its merger

strategy, KHC disclosed to investors that the company would deliver on certain cost savings

results throughout the company, including in the procurement division, a large cost center for

KHC. The cost savings strategy, including its impact on costs of goods sold, was widely covered 

by analysts at the time. Although the company achieved the promised cost savings, individual 

procurement employees had key performance targets tied to additional cost savings from the 

procurement division.

10. To implement this cost savings strategy, the company set performance targets for 

procurement division employees tied to savings realized through negotiations with suppliers.

For a period immediately following the merger between Kraft and Heinz, these targets were
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generally achieved, due to, among other things, synergies from renegotiating supplier contracts 

in light of the newly-combined company’s increased purchasing power.

11. By 2017, however, the procurement division had largely exhausted its ability to

extract synergies from the merger. In addition, the cost of many ingredient and packaging

supplies increased significantly due to adverse inflation and unfavorable foreign exchange rates.

12. The combined impact of the increased raw material costs and savings already 

realized in prior years made it more difficult for procurement division employees to achieve 

additional, incremental savings in 2017 and 2018. The procurement division, under the 

Procurement Executive’s direction and with Pelleissone’s oversight, implemented overly 

ambitious annual budget and division-level savings targets, based on corporate KHC targets. 

They, in turn, pushed procurement division employees to come up with ideas to generate

additional immediate, same-year, savings, and did not adjust the internal targets.

Expense Management Misconduct

13. The expense management misconduct was carried out by KHC’s procurement 

division employees, across multiple geographic zones, and involved several strategies employed to 

misrepresent the true nature of transactions, resulting in accounting errors and misstatements. Out 

of the 295 transactions that KHC ultimately corrected in connection with the restatement, 

approximately 59 were part of the procurement division’s expense management misconduct,

including the following types of transactions:

• “Prebate Transactions” – KHC procurement division employees agreed to futureyear commitments, like contract extensions and future-year volume purchases, in 

exchange for savings discounts and credits by suppliers (“Prebates”), but

mischaracterized the savings in contract documentation, which stated that they

were for past or same-year purchases made by KHC (“Rebates”);

• “Clawback Transactions” – KHC procurement division employees agreed to take 

upfront payments subject to repayment through future price increases or volume

commitments, but documented the transaction in ways which obscured the

repayment obligation; and

• “Price Phasing Transactions” – Suppliers agreed to reduce their prices during a 

certain period in exchange for an offsetting price increase in a future period, but 

the full nature of the arrangement was not communicated by KHC procurement 

division employees to KHC controller group employees.

14. In accordance with U.S. GAAP,2 KHC should have recognized the savings

 

2 GAAP requires that a “rebate or refund of a specified amount of cash consideration that is payable pursuant to a 

binding arrangement only if the entity completes a specified cumulative level of purchases or remains a customer 

for a specified time period shall be recognized as a reduction of the cost of sales based on a systematic and rational 
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provided in exchange for future commitments over the period of time that KHC performed the

commitments. Accordingly, when a prebate was provided in exchange for a contract extension

or future-year volume commitment, the savings should have been recognized over the life of the

extension, or the future period in which KHC purchased the goods from the supplier. 

Conversely, rebate savings from past or same-year commitments should have been recognized

ratably over the period in which they were earned. Finally, clawback transactions should have

been recognized ratably over the clawback period—when it was reasonably estimable that KHC 

would satisfy its repayment obligation.

2014-2015: Early Expense Management Misconduct

15. In the months leading up to the merger with Kraft, the procurement division of

Heinz was faced with a $10 million year-end cost savings gap. This gap created pressure for the 

division to come up with ideas to generate additional same-year savings. As a result, the 

Procurement Executive, who worked at Heinz at the time, took steps with regard to a previouslynegotiated transaction with a packaging supplier to improperly recognize additional cost savings

in 2015. Pelleissone received monthly performance reports of these negotiations.

16. The original agreement, which the Procurement Executive signed the year earlier 

on behalf of Heinz, provided that the supplier would make a $3.5 million upfront payment 

(commonly referred to as a “prebate”) to Heinz in exchange for the parties’ signing a new threeyear contract in 2015. The letter of intent further stated that the supplier was not obligated to 

provide the $3.5 million prebate payment if the parties failed to execute the new contract. 

Consistent with this contract language, the Procurement Executive delivered a presentation to 

Pelleissone which communicated that the cost savings from the $3.5 million prebate transaction 

was linked to the three-year period covered by the new contract.

17. In late 2015, following the merger, KHC renegotiated the language describing the

$3.5 million prebate, entered into a new contract which stated the payment was “a non-refundable

2015 payment . . . for purchases made in 2015,” and prematurely recognized the cost savings in 

2015.

18. This accounting treatment was improper because the final contract, which the 

Procurement Executive approved and signed, mischaracterized the true nature of the supplier 

payment by concealing the fact that the $3.5 million prebate payment remained linked to a threeyear contract.

19. Planning documents that the Procurement Executive presented to Pelleissone 

acknowledged that Heinz was in the process of negotiating a new supplier contract for the 

purpose of generating “improved, backdated impact for CY15” in the form of a “rebate.” The 

 

allocation of the cash consideration offered to each of the underlying transactions that results in progress by the 

entity toward earning the rebate or refund provided the amounts are probable and can be reasonably estimated. If

the rebate or refund is not probable and cannot be reasonably estimated, it shall be recognized as the milestones are

achieved.” Accounting Standards Codification (“ASC”) 705-20 Accounting for Certain Consideration Received

from a Vendor.
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document stated that the parties needed to “align on wording,” without which, the company 

could “book only 1/3 of benefit” in 2015. The Procurement Executive also met with the CEO of 

the supplier in order to determine if the supplier would be “open to reword” the description of 

the payment to “allow [Heinz] to book” the full “3,5 Mi[llio]n USD into 2015”, and discussed 

internally that wording of the $3.5 million payment would enable Heinz to book the amount in 

2015. Finally, Pelleissone and the Procurement Executive understood that a final board 

presentation regarding procurement, unlike prior drafts, did not contain the details surrounding

the $3.5 million prebate payment from the supplier.

20. In a separate transaction involving the same supplier, the Procurement Executive

and Pelleissone discussed the restructuring of a $2 million retention bonus that the supplier had 

awarded to legacy Kraft before the merger, in order for newly merged KHC to recognize the full 

amount in 2015, resulting in a credit to the savings targets of Heinz procurement personnel. The 

Procurement Executive and Pelleissone had access to information that was not communicated to 

the controller group that would have caused the controller group to question whether immediate 

recognition of the $2 million was appropriate. In this transaction, procurement division 

employees negotiated two new contracts with the supplier—one in which legacy Kraft returned 

the bonus back to the supplier, and another, in which the supplier re-conveyed the $2 million 

rebate, but this time, to legacy Heinz, and purportedly in exchange for purchase volumes in 

2015. Recharacterizing the $2 million retention bonus as a supposed purchase volume rebate 

enabled KHC to improperly recognize the full $2 million in 2015. The Procurement Executive

and Pelleissone were provided a global operations presentation that discussed the transaction as 

part of a plan to recognize cost savings in 2015, but did not take steps to address whether the 

rebate was accurately reflected in the new contract with legacy Heinz.

21. These rebate transactions at legacy Heinz and KHC following the merger should 

have placed Pelleissone and the Procurement Executive on notice of the appropriate accounting 

treatment for these types of transactions, that procurement division employees misrepresented 

the true economic nature of rebate transactions, and the importance placed on not linking 

payments from suppliers to future contract obligations in order to achieve premature costs 

savings. For instance, in a pre-merger transaction involving a potato supplier, Heinz’s 

procurement division tried to improperly recognize $10 million in cost savings in 2014 by 

drafting side credit notes which improperly stated that a total of $10 million was being provided 

in exchange for 2014 purchases of potatoes and other vegetables, rather than for the new multiyear contract (the real reason for the $10 million payment). Although this payment was 

ultimately recorded correctly—and spread over the life of the contract— the Procurement 

Executive and Pelleissone should have understood through this transaction that pre-merger 

Heinz’s controllers were being presented agreements with suppliers that mischaracterized the 

true nature of the transactions. In an email communication, for example, the Procurement 

Executive informed Pelleissone of the need to align on a “story” for the Heinz global controller 

regarding the purpose of the supplier payments and the importance of not linking payments from 

suppliers to future obligations.
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2017-2018 Expense Management Misconduct

22. Beginning in 2017 and continuing into 2018, KHC encountered significant

headwinds in its effort to meet annual budget and savings targets, principally due to inflation and

unfavorable foreign exchange rates, the exhaustion of merger-related savings, and the

incremental, year-over-year nature of the procurement division savings targets. The expense 

management misconduct was more limited in 2016 because the procurement division exceeded its 

gross savings targets that year. 

23. However, from 2017 on, as market conditions deteriorated, Pelleissone should

have known that continued incremental savings were unrealistic, but he failed to adjust expense 

reduction expectations for the procurement division, creating a high-pressure environment

focused on obtaining same-year cost savings. Procurement division employees discussed 

internally that Pelleissone “push[ed] like crazy” for them to meet cost savings goals, and 

increased cost savings targets to unreasonable levels. At least in part due to this pressure, in 2017 

and 2018, members of the procurement division—across multiple geographic zones—

manipulated 54 supplier transactions (out of approximately 59 during the Relevant Period) to

improperly obtain premature recognition of cost savings.

24. Pelleissone and the Procurement Executive had access to information, including

from their involvement in the earlier transactions described above, that should have alerted them 

to the fact that certain contracts with suppliers submitted by procurement division employees to 

KHC’s controllers did not reflect the true nature of the underlying agreements and would result 

in improper accounting treatment. Similarly, the Procurement Executive and Pelleissone also 

should have known that certain agreements with suppliers did not generate any new costs

savings, despite purported cost savings being reflected in the company’s accounting books and 

records and public disclosures.

25. In 2017, for example, procurement division employees negotiated a $2 million 

prebate to KHC from a sugar supplier in exchange for a three-year contract extension and future 

sugar purchases. In addition, the agreement called for KHC to return the $2 million back to the 

supplier, in the form of paying higher prices for sugar over the three-year period. Thus, the 

agreement did not produce any actual cost savings. The Procurement Executive and Pelleissone 

should have known the true structure of the transaction, including through their participation in

monthly performance reviews, during which it was disclosed that the $2 million was tied to a 

contract extension and future volume purchases, but that KHC planned to recognize the full cost

savings in August 2017.

26. The Procurement Executive also provided Pelleissone with a “risk mitigation 

plan,” which listed $2 million in 2017 savings from the transaction and identified three other 

transactions that were part of the expense management misconduct. The Procurement Executive

highlighted in the email attaching the plan that he would “need to find a way to make them count 

in 2017 by getting them signed off by the controllers.” Nonetheless, Pelleissone, as a member of 

KHC’s disclosure committee, raised no questions or concerns, and affirmed the accuracy and 

completeness of KHC’s quarterly filings spanning the recognition of this transaction.
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27. During the Relevant Period, as a member of the disclosure committee, Pelleissone 

failed to review the quarterly and annual SEC filings provided to him as part of his disclosure 

committee responsibilities, yet he still certified that he was unaware of inaccuracies or omissions 

in those filings. Pelleissone, thus, failed to implement the internal accounting control of 

disclosure committee review of SEC filings.

28. In 2018, the agreement with the sugar supplier was extended to provide KHC with

more time to repay the supplier for the 2017 prebate, through inflated sugar prices. To accomplish 

this, KHC was given an immediate sugar price reduction, but later in the year, the inflated prices 

resumed, and thereafter, continued over a longer future period in order to effectuate full 

repayment. However, KHC recognized an immediate price reduction of $500,000 as purported 

new cost savings. In an email message from a procurement division employee to colleagues

(though not Pelleissone), the employee stated that Pelleissone proposed procurement “re-open [the 

sugar supplier] deal and extend contract in exchange for longer amortization of pre-payment.”

Thereafter, the Procurement Executive was informed of the deal’s structure, and both Pelleissone 

and the Procurement Executive received presentations communicating the anticipated and

improper 2018 savings recognition.

29. In 2017 and 2018, KHC’s procurement division entered into additional agreements 

with suppliers which provided KHC with upfront payments that were recognized prematurely, 

even though they were tied to future commitments and allowed the suppliers to “clawback” an 

agreed-upon percentage of the upfront prebate. In one such transaction, the Procurement 

Executive was sent a presentation reflecting that KHC obtained a $4 million price reduction and 

$7.5 million in other efficiencies in exchange for committing to a new contract with a “5 year 

term” for the purchase of new cardboard grades from the supplier, and the supplier could “claw 

back a portion if any of the implementation is delayed after 2018.” According to the presentation 

provided to the Procurement Executive, the supplier could recoup the prebate through increased

pricing on 2019 KHC purchases.

30. The Procurement Executive acknowledged that the cost savings from the 

agreement would be “booked in July [2018]” in his self-evaluation that he provided to

Pelleissone in connection with his performance review. He also was informed by one of his 

subordinates that there was potential “upside in the year [] if we get the wording correct[].” 

Thereafter, the Procurement Executive had a call with the CEO of the supplier, during which they 

discussed contract wording for the two supplier payments which did not link either of the 

prebates to a contract extension or a clawback obligation. The Procurement Executive approved 

the final contract, which did not reflect the true nature of the transaction, while understanding that 

KHC’s controllers would rely on the contract to make an accounting determination.

31. Thereafter, the Procurement Executive signed, and along with Pelleissone, 

submitted, a sub-certification of the accuracy and completeness of the financial statements 

generated by global procurement over the first three quarters of 2018, during which the majority 

of the savings from this transaction were improperly recognized. KHC then relied on this subcertification in making representations to its auditor regarding the completeness and accuracy of 

its financial statements.
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32. The Procurement Executive also approved “price phasing” transactions, which 

created the illusion of immediate cost savings through price decreases from suppliers, but, in

reality, were structured to include an offsetting price increase later in time. These “price 

phasing” transactions violated GAAP because they purported to generate cost savings that did 

not exist.

33. In 2017, for example, KHC improperly reduced its costs by $600,000 in earlier 

quarters through a price phasing deal with a sugar supplier. The transaction produced no real 

savings, however, because it required KHC to remit the same amount back to the supplier in the 

form of higher pricing in later quarters within the same year. In connection with this deal, the 

Procurement Executive was aware that his team was contemplating sugar pricing strategies to 

address pressures from Pelleissone to narrow the gap between forecasted and actual expenses to 

date, and approved the transaction. The Procurement Executive and Pelleissone reviewed 

presentations highlighting that the $600,000 in positive impact to KHC’s P&L was tied to “sugar 

price phasing.” Similarly a draft presentation that the Procurement Executive reviewed in 

advance of a trip he and Pelleissone took to visit the supplier highlighted that the deal would 

“[m]ove some negative impact from Q1 CY17 through price phasing.”

KHC’s Internal Controls Deficiencies

34. Throughout the Relevant Period, the company did not design or maintain effective

controls for the procurement division, including those implemented by the finance and controller 

groups, in connection with the accounting for supplier contracts and related arrangements. The 

company reported this material weakness in its annual report on Form 10-K filed on June 7, 2019. 

For example, on the Friday after the close of the August 2017 books, the controller group allowed

KHC to recognize fully in 2017 a rebate that it had previously determined correctly to spread over 

a future-year period. The changed decision by that Monday to allow immediate recognition was 

not adequately documented nor explained to internal stakeholders, and it was made after 

procurement employees were instructed by a superior in operations to “find a way . . . to get 

back” the payments into the August books.

35. During the Relevant Period, finance personnel in gatekeeping roles also 

overlooked indications that some expenses were potentially being improperly managed and 

accounted for in the procurement division. In one internal communication, for example, a 

member of KHC’s controller group acknowledged a procurement buyer’s effort to “jam [a] 

rebate in to help [KHC’s] results in 2017.” That member of the controller group took no steps to 

report this conduct to legal or compliance, nor to determine whether it was part of a larger

practice within procurement.

36. During the Relevant Period, KHC also tied internal performance metrics and 

compensation of the procurement legal group staff to assisting the procurement division’s efforts 

to reduce costs. Additionally, prior to 2018, KHC failed to provide the legal group with adequate 

staffing and resources for reviewing numerous global supply contracts, many of which were 

under negotiation at the same time. Under these conditions, the part of the legal group in charge 

of reviewing procurement contracts overlooked facts indicating that contract documentation was 

inconsistent with the underlying negotiated transaction, and the group failed to have reasonably 
10

sufficient controls over the procurement contracting process.

37. Pelleissone should have known that, in not properly addressing several indicia that 

supplier contracts were being used to manage expenses, he caused KHC’s internal accounting

controls failures, including those relating to: (i) its accounting-related policies and procedures, (ii) 

the preparation and signing of contract approval forms which were to communicate the key

commercial terms of procurement transactions to the controllers, (iii) the review of contract

documentation and contract approval forms by KHC’s controllers, (iv) the completion and

approval of management representation letters affirming the accuracy and completeness of the

financial records of KHC’s Zones, business units, and procurement division, and (v) a disclosure

committee whose function was to review and confirm the accuracy and completeness of KHC’s

draft periodic filings. 

* * * * * *

38. KHC issued debt in securities offerings during the relevant period, the offerings for

which incorporated by reference the inaccurate financial reports that were later restated, and 

offered the Procurement Executive and Pelleissone, among other employees, stock options and 

other stock-based compensation during the Relevant Period, and bonus compensation that was 

tied to their success at generating supply chain and operational cost savings. Specifically, the 

bonus criteria given the largest weight for the Procurement Executive was reaching a metric 

referred to as a purchase price variance target that was based on the amount of year-over-year 

savings the procurement division obtained from its supplier contracts. Similarly, Pelleissone was 

assigned responsibility for operational costs, which not only were a key factor in determining the

company’s annual budget, but were also directly impacted by the year-over-year savings achieved

by the procurement division.

39. Additionally, during the period of the misconduct, Pelleissone exercised options in 

August 2018 on 35,000 shares of KHC common stock and then sold the shares at a profit.

VIOLATIONS

40. Section 17(a)(2) of the Securities Act proscribes the receipt of “money or property

by means of any untrue statement of a material fact or any omission to state a material fact

necessary in order to make the statements made, in light of the circumstances under which they

were made, not misleading.” Section 17(a)(3) of the Securities Act proscribes engaging “in any

transaction, practice, or course of business which operates or would operate as a fraud or deceit

upon the purchaser.” A violation of these provisions does not require scienter and may rest on a

finding of negligence. See Aaron v. SEC, 446 U.S. 680, 685, 701-02 (1980).

41. Section 13(a) of the Exchange Act requires issuers to file such periodic and other

reports as the Commission may prescribe and in conformity with such rules as the Commission

may promulgate. Exchange Act Rules 13a-1, 13a-11, and 13a-13 require the filing of annual,

current, and quarterly reports, respectively. The obligation to file such reports embodies the

requirement that they be true and correct. See, e.g., SEC v. Savoy Indus., Inc., 587 F.2d 1149,
11

1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). In addition to the information

expressly required to be included in such reports, Rule 12b-20 of the Exchange Act requires

issuers to add such further material information, if any, as may be necessary to make the required

statements, in the light of the circumstances under which they are made not misleading. A

violation of these reporting provisions does not require scienter and may rest on a finding of

negligence. See SEC v. Wills, 472 F. Supp. 1250, 1268 (D.D.C. 1978).

42. Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make

and keep books, records, and accounts that accurately and fairly reflect the transactions and

dispositions of their assets. Section 13(b)(2)(B) of the Exchange Act requires all reporting

companies to devise and maintain a system of internal accounting controls sufficient to provide

reasonable assurances that transactions are recorded as necessary to permit preparation of

financial statements in accordance with generally accepted accounting principles. Scienter is not

an element of the books and records and internal control provisions. See Ponce v. SEC, 345 F.3d

722, 737 n.10 (9th Cir. 2003) (noting that a “plain reading of Section 13(b) reveals that it also

does not impose a scienter requirement”).

43. Section 13(b)(5) of the Exchange Act provides: “No person shall knowingly

circumvent or knowingly fail to implement a system of internal accounting controls or knowingly 

falsify any book, record, or account described in paragraph (2) [of the statute].” 

44. Rule 13b2-1 also prohibits any person from directly or indirectly, falsifying or 

causing to be falsified, any book, record, or account subject to Section 13(b)(2)(A). Rule 13b2-

2(a) prohibits an officer or director of an issuer from, among other things, making or causing to 

be made a materially false or misleading statement to an accountant in connection with any 

required audit of the issuer’s financial statements or the preparation of a report required to be 

filed with the Commission. Scienter is not required to establish a violation of either of these 

rules. See World-Wide Coin Investments, 567 F. Supp. 724, 749 (N.D. Ga. 1983) (addressing 

Rule 13b2-1); SEC v. McNulty, 137 F.3d 732, 740-41 (2d. Cir. 1997) (addressing Rule 13b2-2).

FINDINGS

45. Based on the foregoing, the Commission finds that Respondent KHC violated 

Securities Act Sections 17(a)(2) and 17(a)(3), Exchange Act Sections 13(a), 13(b)(2)(A), and 

13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13 promulgated

thereunder.

46. Based on the foregoing, the Commission finds that Respondent Pelleissone (a) 

violated Securities Act Sections 17(a)(2) and 17(a)(3), Exchange Act Section 13b-5, and 

Exchange Act Rules 13b2-1 and 13b2-2(a); and (b) caused KHC’s violations of Sections 13(a), 

13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11, and 13a-13 

promulgated thereunder.

DISGORGEMENT AND CIVIL PENALTIES

47. The disgorgement and prejudgment interest ordered in Section IV, paragraph D
12

below is consistent with equitable principles and does not exceed Respondent’s net profits from 

his violations, and will be distributed to harmed investors to the extent feasible. The 

Commission will hold funds paid pursuant to paragraph D in an account at the United States 

Treasury pending distribution. Upon approval of the distribution final accounting by the 

Commission, any amounts remaining that are infeasible to return to investors, and any amounts 

returned to the Commission in the future that are infeasible to return to investors, may be 

transferred to the general fund of the U.S. Treasury, subject to Section 21F(g)(3) of the 

Exchange Act.

KHC’S COOPERATION AND REMEDIAL EFFORTS

48. In determining to accept Respondent KHC’s Offer, the Commission considered

the cooperation and remedial acts promptly undertaken by KHC. Among other efforts, KHC 

proactively expanded the scope of its internal investigation, provided timely updates to the 

Commission staff regarding KHC’s investigation findings, and provided courtesy translations of 

foreign language documents. KHC has taken disciplinary action, enhanced review of its finance, 

controllership, and legal functions, and instituted enhanced training, policies and procedures to 

prevent and detect future misconduct of the type described in the Order.

IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions

agreed to in Respondents’ Offers.

Accordingly, it is hereby ORDERED, effective immediately, that:

A. KHC shall cease and desist from committing or causing any violations and any

future violations of Securities Act Sections 17(a)(2) and 17(a)(3) and Exchange Act Sections 13(a), 

13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13

promulgated thereunder.

B. KHC shall, within ten (10) days of the entry of this Order, pay a civil money

penalty in the amount of $62,000,000 to the Securities and Exchange Commission. If timely 

payment is not made, additional interest shall accrue pursuant to 31 U.S.C. §3717.

C. Pelleissone shall cease and desist from committing or causing any violations and any 

future violations of Securities Act Sections 17(a)(2) and 17(a)(3), Exchange Act Sections 13b-5,

13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 13b2-1, 13b2-2(a), 12b-20, 13a-1, 

13a-11, and 13a-13 promulgated thereunder.

D. Pelleissone shall, within ten (10) days of the entry of this Order, pay a civil money 

penalty in the amount of $300,000, disgorgement of $12,500, and prejudgment interest of 

$1,711.31 to the Securities and Exchange Commission. If timely payment of the civil money 

penalty is not made, additional interest shall accrue pursuant to 31 U.S.C. §3717, and if timely 

payment of disgorgement and prejudgment interest is not made, additional interest shall accrue 
13

pursuant to SEC Rule of Practice 600. 

Payment must be made in one of the following ways:

(1) Respondents may transmit payment electronically to the Commission, which will

provide detailed ACH transfer/Fedwire instructions upon request;

(2) Respondents may make direct payment from a bank account via Pay.gov through 

the SEC website at http://www.sec.gov/about/offices/ofm.htm; or

(3) Respondents may pay by certified check, bank cashier’s check, or United States 

postal money order, made payable to the Securities and Exchange Commission 

and hand-delivered or mailed to:

Enterprise Services Center Accounts Receivable Branch HQ Bldg., Room 181, AMZ-341

6500 South MacArthur Boulevard Oklahoma City, OK 73169

Payments by check or money order must be accompanied by a cover letter identifying the

Respondents in these proceedings, and the file number of these proceedings; a copy of the cover 

letter and check or money order must be sent to Anita B. Bandy, Associate Director, Division of 

Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, DC 20549. 

E. Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, a Fair Fund is created 

for disgorgement, prejudgment interest and penalties referenced in paragraphs B and D 

above. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 

treated as penalties paid to the government for all purposes, including all tax purposes. To 

preserve the deterrent effect of the civil penalties, Respondents agree that in any Related Investor 

Action, Respondents shall not argue that Respondents are entitled to, nor shall Respondents 

benefit by, offset or reduction of any award of compensatory damages by the amount of any part 

of Respondents’ payment of a civil penalty in this action ("Penalty Offset"). If the court in any 

Related Investor Action grants such a Penalty Offset, Respondents agree that Respondents shall, 

within 30 days after entry of a final order granting the Penalty Offset, notify the Commission's 

counsel in this action and pay the amount of the Penalty Offset to the Securities and Exchange 

Commission. Such a payment shall not be deemed an additional civil penalty and shall not be 

deemed to change the amount of the civil penalties imposed in this proceeding. For purposes of 

this paragraph, a "Related Investor Action" means a private damages action brought against 

Respondents by or on behalf of one or more investors based on substantially the same facts as 

alleged in the Order instituted by the Commission in this proceeding.

F. Respondent KHC acknowledges that the Commission is not imposing a civil 

penalty in excess of $62,000,000 based upon its cooperation in a Commission investigation and

related enforcement action. If at any time following the entry of the Order, the Division of 

Enforcement (“Division”) obtains information indicating that KHC knowingly provided 

materially false or misleading information or materials to the Commission, or in a related 

proceeding, the Division may, at its sole discretion and with prior notice to KHC, petition the 

Commission to reopen this matter and seek an order directing that KHC pay an additional civil 
14

penalty. KHC may contest by way of defense in any resulting administrative proceeding whether 

it knowingly provided materially false or misleading information, but may not: (1) contest the 

findings in the Order; or (2) assert any defense to liability or remedy, including, but not limited 

to, any statute of limitations defense.

V.

It is further Ordered that, solely for purposes of exceptions to discharge set forth in

Section 523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and

admitted by Respondent Pelleissone, and further, any debt for disgorgement, prejudgment 

interest, civil penalty or other amounts due by Pelleissone under this Order or any other 

judgment, order, consent order, decree or settlement agreement entered in connection with this 

proceeding, is a debt for the violation by Pelleissone of the federal securities laws or any 

regulation or order issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy

Code, 11 U.S.C. §523(a)(19).

By the Commission.

Vanessa A. Countryman

Secretary