SACRAMENTO — Nearly four years after his indictment on more than a dozen federal fraud charges, the former chief operating officer of Davis-based Marrone Bio Innovations Inc. admitted Thursday to allegations that he unlawfully inflated the firm’s revenue figures.
“Guilty, your honor,” Hector Absi told U.S. District Court Judge Morrison England Jr. when asked how he would plead to a felony charge of conspiracy to commit mail fraud, wire fraud and securities fraud.
Absi, 51, now the owner of a Nevada auto-body shop, faces up to 25 years in prison, $250,000 in fines and other financial penalties at his Feb. 20, 2020, sentencing hearing. A trial scheduled to begin in February has been vacated.
A 16-count federal indictment unveiled in February 2016 accused Absi of using unlawful sales practices in order to double MBI’s reported revenue figures from 2012 to 2013.
The document alleged that Absi, responsible for global sales, marketing and business development for the maker of bio-based pesticides and other plant-health products, met MBI’s revenue-doubling goals by selling products to customers with side agreements that offered “inventory protection.”
Under those agreements, the company agreed to either repurchase the product from the customer or extend the terms of payment if the customer was still in possession of the product after a specified time period.
Authorities said at the time of the indictment that under “generally accepted accounting principles,” revenue from sales that include such agreements cannot be recognized on the company’s books.
Between March 2013 and July 2014, according to the indictment, Absi conspired with at least one other MBI employee to misrepresent to MBI’s accounting department, its external auditors, and the investing public that MBI had made sales under such terms.
Absi also is alleged to have conspired with others to backdate the delivery of certain shipments of MBI’s products to enhance reported revenues for the quarter, receiving a performance-based bonus of $35,000 to $40,000 and exercising more than $200,000 in stock options as a result of the inflated revenue figures.
He resigned from MBI in August 2014, triggering a period of financial and legal turmoil for the company that included a 44 percent single-day drop in its NASDAQ share prices as well as investigations by the U.S. Attorney’s Office and the Securities and Exchange Commission.
MBI agreed to pay $1.7 million in civil penalties to settle SEC allegations of securities fraud, and internal controls and books and records violations. Founder and CEO Pam Marrone and former chief financial officer Donald Glidewell reimbursed the company a combined $27,000 for the financial incentives they received as a result of the increased sales figures.
The company also paid $12 million in May 2016 to settle shareholders’ class-action lawsuits stemming from the fraud, which alleged MBI filed false and misleading financial reports. The company admitted no wrongdoing in the settlement agreement.
Marrone referred comment about Absi’s plea deal to the company’s general counsel, Linda Moore.
“Most often people think that fraud is a ‘victimless crime.’ That is simply not true,” Moore said Thursday. “Our company was seriously injured by Mr. Absi’s actions, and our employees and shareholders were also victims. This has been hanging over us for five years, so we are thankful to get a bit of closure.”
Marrone Bio reported in August that its revenues for the second quarter of 2019 increased 22 percent to $7 million from revenues of $5.8 million in the second quarter of 2018. The record second-quarter sales reflected the company’s continued growth in the seasonally smaller specialty markets for trees, fruits, nuts, vegetables and vines.
In addition to the fraud count, Absi faced charges of making false statements to an accountant of a publicly traded company and falsifying the books or records of a corporation. A prosecutor in the case, Assistant U.S. Attorney Lee Bickley, told England her office would move to dismiss the remaining charges in exchange for Absi’s guilty plea.
Absi remains free on bond pending his sentencing hearing. His lead attorney, William Portanova, declined to comment at length following Thursday’s plea but said the defense will “have a lot to say” at the February proceeding.
“We’re glad it’s almost over,” Portanova said.
— Reach Lauren Keene at lkeene@davisenterprise.net or 530-747-8048. Follow her on Twitter at @laurenkeene