UPS has agreed to pay a $45 million fine to settle SEC claims over misrepresentation in valuation of its Freight unit, raising questions on future customer impact.
At a Glance
- UPS settles SEC claims with $45 million fine for misvaluing its Freight unit.
- SEC alleges violation of federal accounting standards by UPS.
- UPS claims business won’t be materially affected by the settlement.
- No admission of guilt; UPS to implement corrective measures.
Settlement with the SEC
United Parcel Service Inc. (UPS) agreed to pay a $45 million settlement to resolve allegations by the U.S. Securities and Exchange Commission (SEC) regarding the misrepresentation of its UPS Freight unit’s valuation. The SEC accused UPS of sidestepping its internal projections for a lower valuation, favoring more favorable calculations from an external source. This action allegedly contravened federal accounting and reporting laws. UPS chose to settle without admitting or denying these allegations.
UPS assured stakeholders that this settlement, while significant in nature, won’t materially affect its overall operations. Measures have been put in place to enforce compliance, including hiring consultants and providing staff training.
SEC fines UPS $45 million, saying it improperly valued freight business https://t.co/PQGDNYCiit pic.twitter.com/1yRzUF3f3q
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Violation Allegations and Implications
The SEC’s findings indicated that UPS deviated from established Generally Accepted Accounting Principles (GAAP) while valuing its freight business. Allegedly, UPS relied on an external consultant’s $2 billion valuation, which was higher than its balance sheet suggested, allowing them to skirt a potential goodwill impairment record. “Had UPS properly valued Freight, its earnings and other reported items would have been materially lower,” emphasized the SEC agency.
UPS negotiated a sale of the freight unit for less than its carrying value but didn’t inform the consultant of this, leading to a lower valuation on paper. This misrepresentation brought about a goodwill impairment for UPS, which they subsequently sold to TFI International for $800 million in 2021.
SEC fines UPS $45 million, saying it improperly valued freight business https://t.co/B3Mqm5Junf
— Scott Trubey (@FitzTrubey) November 22, 2024
Ongoing Compliance Measures
Despite the conclusion of the SEC’s investigation into UPS, broader inquiries continue as UPS commits to cooperation. UPS maintained that the measures adopted, such as enhanced training and compliance oversight, are aimed at precluding future infractions. The UPS executive team remains confident these actions won’t impede its financial health. “Will not have a material effect on our business, financial condition, results of operations, or liquidity,” affirmed UPS.
The SEC stressed the importance of reliability in fair value estimation and proper goodwill impairment accounting practices. In its assessment, the SEC critiqued UPS for overlooking authentic sale price estimates in favor of less robust third-party valuations. This settlement serves as a reminder to corporate entities about adhering to stringent accounting guidelines to safeguard investor interests.
