UPS has agreed to settle a $45 million complaint with the SEC over improper valuation claims, raising questions about corporate transparency.
At a Glance
- UPS settles SEC complaint for $45 million over freight unit misvaluation.
- The SEC accused UPS of violating federal accounting rules.
- UPS did not admit wrongdoing but will adopt compliance measures.
- The settlement is not expected to affect UPS’s financial health significantly.
SEC’s Allegations Against UPS
The U.S. Securities and Exchange Commission (SEC) alleged that United Parcel Service (UPS) relied on an optimistic external consultant’s valuation instead of its internal lower valuations for its UPS Freight unit. The agency argued that UPS violated Generally Accepted Accounting Principles (GAAP) by flouting federal accounting and disclosure rules, leading to misrepresented earnings. These actions allegedly masked the true financial state of UPS Freight, as revealed by the SEC.
UPS’s decision to pay the $45 million settlement in response to the SEC complaint does not constitute an admission of guilt. The company has pledged to enhance its compliance protocols, which includes hiring a compliance consultant and implementing additional staff training. The SEC emphasized the critical need for corporate entities to rely on reliable fair value estimates and to record goodwill impairment when necessary.
Settlement Terms and Future Implications
UPS agreed to cease future violations as part of the settlement. The company announced that it does not expect the settlement terms to have a material impact on its business operations or financial condition. “Will not have a material effect on our business, financial condition, results of operation, or liquidity,” stated UPS about the agreed penalties. The settlement marks the conclusion of the SEC’s specific investigation into UPS; however, the broader investigation into corporate accounting practices continues. “Had UPS properly valued freight, its earnings and other reported items would have been materially lower,” per the SEC.
Past Valuation Discrepancies
In 2019, UPS estimated its UPS Freight sale value between $350 million and $650 million. However, the company chose to rely on the $2 billion valuation from an external consultant, avoiding a goodwill impairment on its balance sheet. UPS sold the freight unit to TFI International for $800 million in January 2021, reflecting a significant discrepancy with the earlier projection. The SEC noted that UPS’s practices, if not for the optimistic external estimate, would have led to a substantially different financial representation.
“It is essential for companies to prepare reliable fair value estimates and impair goodwill when required. UPS fell short of these obligations, repeatedly ignoring its own well-founded sale price estimates for Freight in favor of unreliable third-party valuations,” said SEC Associate Director Melissa Hodgman
The SEC’s comprehensive investigation into UPS’s valuation practices has concluded, but its wider probe into corporate disclosures and accounting accuracy continues to require UPS’s full cooperation.
