Campbell was founded shortly before the start of the Civil War. Abraham Anderson and Joseph Campbell began manufacturing canned vegetables and fruit preserves. In 1976, Campbell bought out Anderson’s interest and renamed the firm the Joseph Campbell Preserving Company. Later, Arthur Dorrance was Campbell’s new partner. In the early 1920s, John Dorrance, Arthur Dorrance’s nephew, was the sole owner of the Campbell Soup Company, which was the largest producer of canned soup products. Unfortunately, as the twentieth century was coming to a close, the nation’s appetite for condensed soup products was waning. The weakening demand prompted the company’s executives to use an assortment of questionable business practices and accounting schemes to enhance the company’s reported earnings. Campbell stockholders filed a series of lawsuits in late 1990s. The alleged scams included trade loading, improper accounting for loading discounts, shipping to the yard, and guaranteed sales. The plaintiffs in the class-action lawsuit filed against Campbell Soup Company and its top executives eventually added Pricewaterhouse (PwC), Campbell’s independent auditor, as a defendant in the case. To allow a lawsuit filed under the 1934 Security Act to proceed against a defendant, a federal judge must find that the plaintiffs have alleged or “pleaded” facts “to support a strong inference of scienter” on the part of that defendant. After completing the review of PwC’s audit workpapers, judge Irenas ruled that individually and collectively the plaintiff’s allegations did not provide a sufficient basis to justify including the accounting firm as a defendant.
In this case, there are four issues from which we can learn how a company may use improper business practices to manipulate its reported operating results. These practices are trade loading, improper accounting for loading discounts, shipping to the yard, and guaranteed sales....