SEC v. K LAUS HOFMANN, No. 1:21-cv-07407, Southern District of New York (Sept. 3, 2021)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
U.S. SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v.
K
LAUS HOFMANN,
Defendant.
21-CV-7407 (____)
COMPLAINT
ECF CASE
     JURY TRIAL DEMANDED
P
laintiff United States Securities and Exchange Commission (the “SEC”) files this
Complaint against Defendant Klaus Hofmann (“Hofmann”), and alleges as follows:
SUMMARY
1.This action concerns a multi-year expense management scheme by Kraft Heinz
Company (“KHC”)’s procurement division to improperly reduce KHC’s cost of goods sold
1
 and
achieve costs savings targets 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.
2.Specifically, 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.
1
 Cost of goods sold refers to KHC’s direct costs of producing its food and beverage goods.  This
amount includes the supplier costs that KHC expends to produce its goods.

2

3. In accordance with accounting principles generally accepted in the United States
(“Generally Accepted Accounting Principles” or “U.S. GAAP”), if upfront cash and discounts
are tied to future commitments, then the expense savings must be recognized over the  period
KHC performed the future obligations.  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 actions 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.
4. 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 in its public financial statements.
5.  These misleading transactions, along with numerous other misstated accounting
entries, led KHC, in June 2019, to restate its financial statements in its annual report on Form 10-
K filed with the SEC.  The restatement included financial data reported for fiscal year (“FY”)
2015, as well as the financial statements contained in reports filed with the SEC on quarterly
Forms 10-Q and annual Form 10-K for FYs           2016 and 2017 and the first three quarters of FY
2018 that were filed with the SEC.  KHC corrected a total of $208 million in cost savings arising
from 295 transactions and also corrected its Adjusted EBITDA, as reflected in the restatement.
6. Hofmann, KHC’s Chief Procurement Officer during the Relevant Period,
managed the procurement division and was responsible for, among other things, approving
certain of KHC’s contracts with suppliers.  In that role, Hofmann and others signed contract

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approval forms for many of the improperly recognized transactions.  Hofmann also certified the
accuracy and completeness of the
financial statements generated by the procurement division over
the first three quarters of 2018.
KHC then relied upon this sub-certification in making
representations to its auditors regarding the completeness and accuracy of its financial
statements.
7. Despite numerous warning signs that should have alerted Hofmann that KHC
procurement division employees were circumventing KHC’s internal controls in order to achieve
artificial cost savings targets in supplier contracts, Hofmann negligently approved and failed to
prevent supplier contracts that masked the true nature of the transactions.  Hofmann also should
have known that the false and misleading contract documentation that he negligently approved
and failed to prevent was provided to KHC’s finance and controller groups responsible for
preparing KHC’s financial statements (“controllers”), thus causing KHC to prematurely
recognize cost savings in its financial statements.
8. By engaging in the misconduct described in this complaint, Hofmann violated
Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (“Securities Act”) and Section
13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) and Exchange Act Rules
13b2-1 and 13b2-2.  A violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act does not
require scienter and may rest on a finding of negligence.  See Aaron v. SEC, 446 U.S. 680, 685,
701-02 (1980).

9. The SEC seeks injunctive relief, civil penalties, and other appropriate and
necessary equitable relief.
JURISDICTION AND VENUE
10. This Court has jurisdiction over this action pursuant to Sections 20 and 22 of the

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Securities Act [15 U.S.C. §§ 77t and 77v] and Sections 21 and 27 of the Exchange Act [15
U.S.C. §§ 78u and 78aa], and 28 U.S.C. § 1331.
11.  V enue is proper in this Court pursuant to Section 22(a) and (c) of the Securities
Act [15 U.S.C. § 77v(a), (c)] and Section 27(a) and (b) of the Exchange Act [15 U.S.C.
§ 78aa(a), (b)], because certain of the acts, practices, and courses of conduct constituting the
violations alleged herein occurred within the Southern District of New York.  Specifically,
among other things, KHC’s 2015 through 2018 financial statements, which were materially false
and misleading, were available to investors in this district.
12. Hofmann, directly and indirectly, made use of means or instruments of
transportation or communication in interstate commerce, or of the mails, or of any facility of a
national securities exchange in connection with the acts, practices, and courses of conduct
alleged herein.
 DEFENDANT
13. Klaus Hofmann (“Hofmann”), age 63, resides in Zug, Switzerland.  Between
July 2015 and September 2019, Hofmann served as KHC’s Global Head of Procurement and
Chief Procurement Officer.  Hofmann left KHC in May 2020.  Prior to his employment with
KHC, Hofmann was the Global Head of Procurement for H.J. Heinz Co. (“Heinz”), before Heinz
merged with and into Kraft   Foods Group Inc. (“Kraft”) to form KHC in 2015.
RELEVANT INDIVIDUALS
14.   The following entity, relevant to this action, has been charged by the SEC in
separate actions and proceedings:
a. Kraft Heinz Company (KHC) is a publicly traded food and beverage
manufacturing company co-headquartered in Chicago, Illinois, and

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Pittsburgh, Pennsylvania.  KHC has a class of shares registered  with the
SEC pursuant to Exchange Act Section 12(b), which trades on the
NASDAQ Global Select Market located in New York, NY, under        the
symbol “KHC.”  KHC was created in July 2015 through the merger of
public company Kraft with and into private company Heinz.
FACTUAL ALLEGATIONS
I.      BACKGROUND
15. 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 saving
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 research 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.
16. To implement this cost savings strategy, KHC set performance targets for
procurement division employees tied to savings realized through negotiations with KHC’s
suppliers.  In  the period immediately following the merger between Kraft and Heinz, these
targets were generally achieved, due to, among other things, synergies from renegotiating
supplier contracts in light of the newly-combined company’s increased purchasing power.
17.  By 2017, however, KHC’s 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

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exchange rates.  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.
18. The procurement division, under Hofmann’s direction and with the oversight of
a more senior executive of KHC (“Senior Executive”), implemented overly ambitious annual
budget and division-level savings targets, based on corporate KHC targets.  Hofmann and the
Senior Executive, 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.
III.     KHC’s EXPENSE MANAGEMENT MISCONDUCT
19.  T he expense management misconduct was carried out by members of KHC’s
procurement division, 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:
a. “Prebate Transactions” – KHC procurement division employees agreed
to future- year commitments, like contract extensions and future-year
volume purchases, in  exchange for savings discounts and credits by
vendors (“Prebates”), but mischaracterized the savings in contract
documentation, which falsely stated that they were for past or same-year
purchases made by KHC (“Rebates”);

b. “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

c. “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.

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20.  In accordance with GAAP, KHC was required to recognize the savings
provided in exchange for future commitments over the period of time that KHC performed the
commitments.  See Accounting Standards Codification (“ASC”) 705-20 Accounting for Certain
Consideration Received from a Vendor.  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   contract extension or the future period in which KHC purchased
the goods from the supplier, in accordance with GAAP.  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.
21. Through the relevant period, KHC did not design or maintain effective internal
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.
22. Hofmann, by virtue of his role as Chief Procurement Officer, was responsible for
approving certain procurement contracts on behalf of KHC.  Based on his responsibilities for
procurement division cost savings, his communications with the procurement employees who
negotiated these improper transactions, and his communications with suppliers regarding KHC’s
desired accounting treatment for certain supplier transactions, Hofmann should have known that
the improper procurement transactions during the Relevant Period were not properly accounted
for under GAAP.
III.      2014-2015:  Early Expense Management Misconduct
23. In the months leading up to the merger with Kraft in July 2015, the procurement
division of Heinz was faced with a $10 million year-end cost savings gap. As a result, members

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of the procurement division and Hofmann, who worked at Heinz at the time, took steps with
regard to a previously negotiated transaction with a packaging supplier that led KHC’s improper
recognition of additional cost savings in 2015.
24. The original letter of intent agreement with the packaging supplier, which
Hofmann signed in 2014 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 three-year contract  in 2015.  The letter of intent further stated that the
supplier was not obligated to pay the $3.5 million prebate if the parties failed to execute the new
contract.  Consistent with this language, Hofmann delivered a presentation in January 2015 to
the Senior Executive (then at Heinz) communicating that  cost savings from the $3.5 million
prebate transaction was linked to the three-year period covered by the new contract.
25. A few months later, Hofmann presented a planning document to the Senior
Executive stating that Heinz was in the process of negotiating a new contract with the supplier to
generate “improved, backdated impact for CY15” in the form of a “rebate.”  The document
stated that the  parties needed to “align on wording,” without which the company could “book
only 1/3 of benefit” in 2015.  Hofmann 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 that would enable Heinz to improperly book the amount in 2015.
26. In late 2015, following the merger, KHC renegotiated language with the same
supplier describing the $3.5 million prebate, entered into a new contract with the supplier
characterizing the payment as “a non-refundable 2015 payment . . .  for purchases made in
2015,” and prematurely recognized the cost savings in 2015.  This accounting treatment was

9

improper and violated GAAP because the final contract, which Hofmann approved and signed,
mischaracterized the true nature of the supplier payment by not disclosing the fact that  the $3.5
million prebate payment remained linked to a three-year contract.
27. Finally, Hofmann and the Senior Executive understood that a final board
presentation regarding procurement, unlike prior drafts, did not contain details surrounding the
$3.5 million prebate payment from the supplier.
28. In a separate transaction involving the same supplier, Hofmann and the Senior
Executive discussed the restructuring of a $2 million retention bonus that the supplier had
awarded to 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
Senior Executive and Hofmann 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 Kraft returned the
bonus back to the supplier, and another, in which the supplier re-conveyed the $2 million rebate,
but this time, to 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 Senior Executive and Hofmann
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 Heinz.
29. These rebate transactions from Heinz and the early months of KHC following
the merger should have placed Hofmann and the Senior Executive on notice that procurement

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division employees were misrepresenting the true economic nature of rebate transactions.
Specifically, Hofmann was provided with information that should have put him on notice of the
importance of not linking payments from suppliers to future contract obligations in order to
achieve premature costs savings.
30. For instance, in another 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 characterized a $10 million supplier payment as
being provided in exchange for past purchases rather than for the new multi-year contract (the
real reason for the $10 million payment).  Although this payment was ultimately recorded
correctly—and spread over the life of the contract—Hofmann and the Senior Executive should
have understood through this transaction that before the merger, Heinz’s controllers were being
presented agreements with vendors that mischaracterized the true nature of the transactions.  In
an email communication, for example, Hofmann informed the Senior Executive of the need to
align on a “story” that Heinz procurement personnel would tell Heinz’s global controller
regarding the purpose of the supplier payments and the importance of not linking payments from
suppliers to future obligations.
IV.      2017-2018:  KHC Expense Management Misconduct Continues

31.  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.  In 2017 and 2018, members of the procurement division—

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across multiple geographic zones—manipulated 54 supplier transactions (out of approximately
59 during the Relevant Period) to improperly obtain premature recognition of cost savings.
V.       Hofmann Negligently Approved And Failed To Prevent Supplier Contracts For
           Transactions That Did Not Reflect True Rebate Terms, Resulting In Misstated
           Financial Statements

32. Hofmann and the Senior Executive had access to information, including from his
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, Hofmann was negligent in not preventing members
of the procurement division from entering into certain agreements with suppliers that did not
generate any new costs savings, despite purported  cost savings being reflected in the company’s
accounting books and records and public disclosures.
33. 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.  Hofmann and the Senior Executive 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, even though KHC improperly recognized the full cost
savings in August 2017.
34. Hofmann also provided the Senior Executive a “risk mitigation plan,” which
listed $2 million in 2017 savings from the transaction and identified three other transactions that

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were part             of the expense management misconduct.  Hofmann highlighted in the email that he
would      “need to find a way to make them count in 2017 by getting them signed off by the
controllers.”
35. 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.  Hofmann was informed of the deal’s structure, and both
Hofmann and the Senior Executive received presentations communicating the anticipated and
improper 2018 savings recognition.
36. 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, Hofmann
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 Hofmann, the supplier could recoup the prebate through increased pricing for 2019
KHC purchases.
37.  Hofmann acknowledged that the cost savings from the agreement would be
“booked in July [2018]” in his self-evaluation that he provided to the Senior Executive in

13

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, Hofmann
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 payments to a contract extension or a
clawback obligation.  Hofmann approved the final contract, which did not reflect the true nature
of the transaction because it did not link KHC’s future payment obligations or the supplier’s
right to clawback the prebate, while understanding that KHC’s controllers would rely on the
contract to make an accounting determination.
38.  Thereafter, Hofmann signed, and along with the Senior Executive, submitted a
sub-certification of the accuracy and completeness of the financial statements generated by
KHC’s procurement division 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 sub-
certification to prepare representations to its auditors regarding the completeness and accuracy of
its financial statements.
39.  Hofmann also approved “price phasing” supplier 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 recognize cost savings that did not
exist.
40. In 2017, for example, Hofmann unreasonably did not prevent the execution of
a transaction in which 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

14

higher pricing in later quarters within the same year.  In connection with this deal, Hofmann
was aware that his team was contemplating sugar pricing strategies to address pressures from
the Senior Executive to narrow the gap between forecasted and expected expenses to date.
Hofmann and the Senior Executive also reviewed presentations highlighting that the $600,000
in positive impact to KHC’s budget was tied  to “sugar price phasing.”  Similarly, a draft
presentation that Hofmann reviewed in advance of a trip he took with the Senior Executive to
visit the supplier highlighted that the deal would “[m]ove some negative impact from Q1 CY17
through price phasing.”
41.  The improper recognition of savings for the 59 transactions caused KHC to
issue materially false and misleading financial statements in reports filed with the SEC on
annual Forms 10-K for FYs 2015, 2016 and 2017, on Forms 10-Q for the quarterly periods in
FYs 2016 and 2017 and the first three quarters of FY 2018, and on summary KHC financial
data for the fourth quarter of 2018 furnished to the SEC on Form 8-K.  By improperly
recognizing savings from the 59 transactions, the financial statements falsely and materially
underreported KHC’s costs of goods sold during the Relevant Period.
VI.      Hofmann’s Internal Accounting Controls and Books and Records
            Violations

42.  Hofmann knew or should have known about the following KHC internal
accounting controls, which included: (i) the preparation and signing of contract approval forms
which were required to communicate the key commercial terms of procurement transactions to
the controllers, (ii) the review of contract documentation and contract approval forms by
KHC’s controllers, and (iii) the completion of accurate sub-certifications affirming that there
were not material transactions, agreements, or accounts that had not been properly recorded in
KHC’s accounting.

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43. Hofmann’s approval of supplier agreements and signing of the inaccurate 2018
sub-certification violated Section 13(b)(5)   of the Exchange Act and Rules 13b2-1 and 13b2-2
thereunder.
 TOLLING AGREEMENTS
44. Hofmann and the SEC entered into tolling agreements suspending the running
of any applicable statute of limitations from December 7, 2020 through April 5, 2021; from
April 6, 2021 through July 8, 2021; and from July 9, 2021 through September 10, 2021.
COUNT I
Violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act
(Negligence-Based Fraud)

45. The SEC realleges and incorporates by reference here the allegations in
paragraphs 1 through 44.
46.  Hofmann, in connection with the offer to sell or sale of securities and by the
use of means or instruments of transportation or communication in interstate commerce or by
the use of the mails, directly or indirectly and with negligence, obtained 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, and negligently engaged in a transaction, practice, or course of
business which operated or would have operated as a fraud or deceit on purchasers of KHC’s
securities.
47. 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 Senior Executive and Hofmann, among other employees, stock options
and other stock-based compensation during the relevant period, and bonus compensation that

16

was tied to their success at generating supply chain and operational cost savings.  Specifically,
the bonus criteria given the largest weight for Hofmann 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, the Senior Executive  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.
48.  By engaging in the conduct described above, Hofmann violated, and unless
restrained and enjoined will again violate, Sections 17(a)(2) and 17(a)(3) of the Securities Act
[15 U.S.C. § 77q(a)(2), (3)].
COUNT II
Violations of Rule 13b2-1 of the Securities Exchange Act
(Books and Records)

49.  The SEC realleges and incorporates by reference here the allegations in
paragraphs 1 through 48.
50.  Section 13(b)(2)(a) of the Exchange Act [15 U.S.C. § 78m(b)(2)(a)] requires
issuers of registered securities make and keep books, records, and accounts, which,
in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
of the issuer.  Rule 13b2-1 [17 CFR § 240.13b2-1] issued thereunder prohibits any person from
directly or indirectly falsifying, or causing the falsification of, any book, record, or account
required by Section 13(b)(2)(A).
51. By engaging in the conduct described above, Hofmann violated, and unless
restrained and enjoined will again violate, Rule 13b2-1 of the Exchange Act [17 CFR
§ 240.13b2-1].

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COUNT III
Violations of Rules 13b2-2 of the Securities Exchange Act
(Directly or Indirectly Making False Statements to Accountants and Auditors)

52. The SEC realleges and incorporates by reference here the allegations in
paragraphs 1 through 51.
53.  Exchange Act Rule 13b2-2 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.
54. By engaging in the conduct described above, Hofmann violated, and unless
restrained and enjoined will again violate, Rule 13b2-2 of the Exchange Act [17 CFR §
240.13b2-2]  .
COUNT IV
Violations of Section 13(b)(5) of the Securities Exchange Act
(Internal Controls)

55.  The SEC realleges and incorporates by reference here the allegations in
paragraphs 1 through 54.
56.  Section 13(b)(5) of the Exchange Act [15 U.S.C. § 78m(b)(5)] prohibits
individuals from knowingly circumventing or knowingly failing to implement a system of
internal accounting controls or knowingly falsifying any book, record or account.
57. By engaging in the conduct described above, Hofmann violated, and unless
restrained and enjoined will again violate, Section 13(b)(5) of the Exchange Act [15 U.S.C.
§ 78m(b)(5)].

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PRAYER FOR RELIEF
WHEREFORE, the SEC respectfully requests that the Court enter a Final Judgment:
A. Finding that Hofmann violated the federal securities laws alleged in Counts I through
IV of the Complaint;
B. Permanently restraining and enjoining Hofmann from violating the federal securities
laws alleged in the Complaint;
C. Ordering Hofmann to pay civil monetary penalties pursuant to Section 21(d)(3) of the
Exchange Act [15 U.S.C. § 78u(d)(3)] and Section 20(d) of the Securities Act [15
U.S.C. § 77t(d)];
D.  Ordering that Hofmann be barred from acting as an officer or director of any public
company pursuant to the Court’s inherent equitable authority and Section 21(d)(5) of
the Exchange Act [15 U.S.C. § 78u(d)(5)].
E. Granting such other and further equitable relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
 Pursuant to Rule 38 of the Federal Rules of Civil Procedure, the SEC hereby demands
trial by jury.
Dated:  September 3, 2021   Respectfully submitted,
      /s/ James P. Connor
      James P. Connor*
      Attorney for Plaintiff
U.S. SECURITIES AND EXCHANGE
COMMISSION
100 F Street NE
Washington, DC 20549
Tel: (202) 551-8394
      Email: [email protected]

*Pending admission pro hac vice

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Of counsel:
Seth M. Nadler
Thomas B. Rogers
100 F Street NE
Washington, DC 20549

UNITED STATES DISTRICT COURT 
SOUTHERN DISTRICT OF NEW YORK 

U.S. SECURITIES AND EXCHANGE 
COMMISSION, 

Plaintiff,   
v. 

KLAUS HOFMANN, 

Defendant. 

21-CV-7407 (____)

COMPLAINT 

ECF CASE 
     JURY TRIAL DEMANDED 

Plaintiff United States Securities and Exchange Commission (the “SEC”) files this 

Complaint against Defendant Klaus Hofmann (“Hofmann”), and alleges as follows: 

SUMMARY 

1. This action concerns a multi-year expense management scheme by Kraft Heinz

Company (“KHC”)’s procurement division to improperly reduce KHC’s cost of goods sold1 and 

achieve costs savings targets 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.       

2. Specifically, 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. 

1 Cost of goods sold refers to KHC’s direct costs of producing its food and beverage goods.  This 
amount includes the supplier costs that KHC expends to produce its goods.

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

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

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

KHC performed the future obligations.  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 actions 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.   

4. 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 in its public financial statements. 

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

entries, led KHC, in June 2019, to restate its financial statements in its annual report on Form 10-

K filed with the SEC.  The restatement included financial data reported for fiscal year (“FY”) 

2015, as well as the financial statements contained in reports filed with the SEC on quarterly 

Forms 10-Q and annual Form 10-K for FYs           2016 and 2017 and the first three quarters of FY 

2018 that were filed with the SEC.  KHC corrected a total of $208 million in cost savings arising 

from 295 transactions and also corrected its Adjusted EBITDA, as reflected in the restatement. 

6. Hofmann, KHC’s Chief Procurement Officer during the Relevant Period, 

managed the procurement division and was responsible for, among other things, approving 

certain of KHC’s contracts with suppliers.  In that role, Hofmann and others signed contract 

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approval forms for many of the improperly recognized transactions.  Hofmann also certified the 

accuracy and completeness of the financial statements generated by the procurement division over 

the first three quarters of 2018.  KHC then relied upon this sub-certification in making 

representations to its auditors regarding the completeness and accuracy of its financial 

statements.   

7. Despite numerous warning signs that should have alerted Hofmann that KHC 

procurement division employees were circumventing KHC’s internal controls in order to achieve 

artificial cost savings targets in supplier contracts, Hofmann negligently approved and failed to 

prevent supplier contracts that masked the true nature of the transactions.  Hofmann also should 

have known that the false and misleading contract documentation that he negligently approved 

and failed to prevent was provided to KHC’s finance and controller groups responsible for 

preparing KHC’s financial statements (“controllers”), thus causing KHC to prematurely 

recognize cost savings in its financial statements.   

8. By engaging in the misconduct described in this complaint, Hofmann violated 

Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (“Securities Act”) and Section 

13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) and Exchange Act Rules 

13b2-1 and 13b2-2.  A violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act does not 

require scienter and may rest on a finding of negligence.  See Aaron v. SEC, 446 U.S. 680, 685, 

701-02 (1980).  

9. The SEC seeks injunctive relief, civil penalties, and other appropriate and 

necessary equitable relief.   

JURISDICTION AND VENUE 

10. This Court has jurisdiction over this action pursuant to Sections 20 and 22 of the 

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Securities Act [15 U.S.C. §§ 77t and 77v] and Sections 21 and 27 of the Exchange Act [15 

U.S.C. §§ 78u and 78aa], and 28 U.S.C. § 1331.  

11.  Venue is proper in this Court pursuant to Section 22(a) and (c) of the Securities 

Act [15 U.S.C. § 77v(a), (c)] and Section 27(a) and (b) of the Exchange Act [15 U.S.C.  

§ 78aa(a), (b)], because certain of the acts, practices, and courses of conduct constituting the 

violations alleged herein occurred within the Southern District of New York.  Specifically, 

among other things, KHC’s 2015 through 2018 financial statements, which were materially false 

and misleading, were available to investors in this district. 

12. Hofmann, directly and indirectly, made use of means or instruments of 

transportation or communication in interstate commerce, or of the mails, or of any facility of a 

national securities exchange in connection with the acts, practices, and courses of conduct 

alleged herein. 

 DEFENDANT 

13. Klaus Hofmann (“Hofmann”), age 63, resides in Zug, Switzerland.  Between 

July 2015 and September 2019, Hofmann served as KHC’s Global Head of Procurement and 

Chief Procurement Officer.  Hofmann left KHC in May 2020.  Prior to his employment with 

KHC, Hofmann was the Global Head of Procurement for H.J. Heinz Co. (“Heinz”), before Heinz 

merged with and into Kraft   Foods Group Inc. (“Kraft”) to form KHC in 2015.   

RELEVANT INDIVIDUALS 

14.   The following entity, relevant to this action, has been charged by the SEC in 

separate actions and proceedings:  

a. Kraft Heinz Company (KHC) is a publicly traded food and beverage 

manufacturing company co-headquartered in Chicago, Illinois, and 

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Pittsburgh, Pennsylvania.  KHC has a class of shares registered  with the 

SEC pursuant to Exchange Act Section 12(b), which trades on the 

NASDAQ Global Select Market located in New York, NY, under        the 

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

public company Kraft with and into private company Heinz. 

FACTUAL ALLEGATIONS 

I.      BACKGROUND 

15. 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 saving  

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 research 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. 

16. To implement this cost savings strategy, KHC set performance targets for 

procurement division employees tied to savings realized through negotiations with KHC’s 

suppliers.  In  the period immediately following the merger between Kraft and Heinz, these 

targets were generally achieved, due to, among other things, synergies from renegotiating 

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

17.  By 2017, however, KHC’s 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 

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exchange rates.  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.  

18. The procurement division, under Hofmann’s direction and with the oversight of 

a more senior executive of KHC (“Senior Executive”), implemented overly ambitious annual 

budget and division-level savings targets, based on corporate KHC targets.  Hofmann and the 

Senior Executive, 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. 

III.     KHC’s EXPENSE MANAGEMENT MISCONDUCT 

19.  The expense management misconduct was carried out by members of KHC’s 

procurement division, 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: 

a. “Prebate Transactions” – KHC procurement division employees agreed 
to future- year commitments, like contract extensions and future-year 
volume purchases, in  exchange for savings discounts and credits by 
vendors (“Prebates”), but mischaracterized the savings in contract 
documentation, which falsely stated that they were for past or same-year 
purchases made by KHC (“Rebates”); 

 
b. “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 

 
c. “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. 

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20.  In accordance with GAAP, KHC was required to recognize the savings 

provided in exchange for future commitments over the period of time that KHC performed the 

commitments.  See Accounting Standards Codification (“ASC”) 705-20 Accounting for Certain 

Consideration Received from a Vendor.  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   contract extension or the future period in which KHC purchased 

the goods from the supplier, in accordance with GAAP.  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. 

21. Through the relevant period, KHC did not design or maintain effective internal 

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.  

22. Hofmann, by virtue of his role as Chief Procurement Officer, was responsible for 

approving certain procurement contracts on behalf of KHC.  Based on his responsibilities for 

procurement division cost savings, his communications with the procurement employees who 

negotiated these improper transactions, and his communications with suppliers regarding KHC’s 

desired accounting treatment for certain supplier transactions, Hofmann should have known that 

the improper procurement transactions during the Relevant Period were not properly accounted 

for under GAAP.   

III.      2014-2015: Early Expense Management Misconduct  

23. In the months leading up to the merger with Kraft in July 2015, the procurement 

division of Heinz was faced with a $10 million year-end cost savings gap. As a result, members 

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of the procurement division and Hofmann, who worked at Heinz at the time, took steps with 

regard to a previously negotiated transaction with a packaging supplier that led KHC’s improper 

recognition of additional cost savings in 2015.  

24. The original letter of intent agreement with the packaging supplier, which 

Hofmann signed in 2014 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 three-year contract  in 2015.  The letter of intent further stated that the 

supplier was not obligated to pay the $3.5 million prebate if the parties failed to execute the new 

contract.  Consistent with this language, Hofmann delivered a presentation in January 2015 to 

the Senior Executive (then at Heinz) communicating that  cost savings from the $3.5 million 

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

25. A few months later, Hofmann presented a planning document to the Senior 

Executive stating that Heinz was in the process of negotiating a new contract with the supplier to 

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

stated that the  parties needed to “align on wording,” without which the company could “book 

only 1/3 of benefit” in 2015.  Hofmann 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 that would enable Heinz to improperly book the amount in 2015.   

26. In late 2015, following the merger, KHC renegotiated language with the same 

supplier describing the $3.5 million prebate, entered into a new contract with the supplier 

characterizing the payment as “a non-refundable 2015 payment . . .  for purchases made in 

2015,” and prematurely recognized the cost savings in 2015.  This accounting treatment was 

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improper and violated GAAP because the final contract, which Hofmann approved and signed, 

mischaracterized the true nature of the supplier payment by not disclosing the fact that  the $3.5 

million prebate payment remained linked to a three-year contract.  

27. Finally, Hofmann and the Senior Executive understood that a final board 

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

$3.5 million prebate payment from the supplier. 

28. In a separate transaction involving the same supplier, Hofmann and the Senior 

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

awarded to 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 

Senior Executive and Hofmann 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 Kraft returned the 

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

but this time, to 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 Senior Executive and Hofmann 

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 Heinz. 

29. These rebate transactions from Heinz and the early months of KHC following 

the merger should have placed Hofmann and the Senior Executive on notice that procurement 

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division employees were misrepresenting the true economic nature of rebate transactions.  

Specifically, Hofmann was provided with information that should have put him on notice of the 

importance of not linking payments from suppliers to future contract obligations in order to 

achieve premature costs savings. 

30. For instance, in another 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 characterized a $10 million supplier payment as 

being provided in exchange for past purchases rather than for the new multi-year contract (the 

real reason for the $10 million payment).  Although this payment was ultimately recorded 

correctly—and spread over the life of the contract—Hofmann and the Senior Executive should 

have understood through this transaction that before the merger, Heinz’s controllers were being 

presented agreements with vendors that mischaracterized the true nature of the transactions.  In 

an email communication, for example, Hofmann informed the Senior Executive of the need to 

align on a “story” that Heinz procurement personnel would tell Heinz’s global controller 

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

suppliers to future obligations. 

IV.      2017-2018:  KHC Expense Management Misconduct Continues 
 

31.  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.  In 2017 and 2018, members of the procurement division—

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across multiple geographic zones—manipulated 54 supplier transactions (out of approximately 

59 during the Relevant Period) to improperly obtain premature recognition of cost savings.  

V.       Hofmann Negligently Approved And Failed To Prevent Supplier Contracts For  
           Transactions That Did Not Reflect True Rebate Terms, Resulting In Misstated           
           Financial Statements 
 

32. Hofmann and the Senior Executive had access to information, including from his 

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, Hofmann was negligent in not preventing members 

of the procurement division from entering into certain agreements with suppliers that did not 

generate any new costs savings, despite purported  cost savings being reflected in the company’s 

accounting books and records and public disclosures. 

33. 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.  Hofmann and the Senior Executive 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, even though KHC improperly recognized the full cost 

savings in August 2017.   

34. Hofmann also provided the Senior Executive a “risk mitigation plan,” which 

listed $2 million in 2017 savings from the transaction and identified three other transactions that 

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were part             of the expense management misconduct.  Hofmann highlighted in the email that he 

would      “need to find a way to make them count in 2017 by getting them signed off by the 

controllers.”   

35. 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.  Hofmann was informed of the deal’s structure, and both 

Hofmann and the Senior Executive received presentations communicating the anticipated and 

improper 2018 savings recognition. 

36. 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, Hofmann 

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 Hofmann, the supplier could recoup the prebate through increased pricing for 2019 

KHC purchases. 

37.  Hofmann acknowledged that the cost savings from the agreement would be 

“booked in July [2018]” in his self-evaluation that he provided to the Senior Executive in 

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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, Hofmann 

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 payments to a contract extension or a 

clawback obligation.  Hofmann approved the final contract, which did not reflect the true nature 

of the transaction because it did not link KHC’s future payment obligations or the supplier’s 

right to clawback the prebate, while understanding that KHC’s controllers would rely on the 

contract to make an accounting determination. 

38.  Thereafter, Hofmann signed, and along with the Senior Executive, submitted a 

sub-certification of the accuracy and completeness of the financial statements generated by 

KHC’s procurement division 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 sub-

certification to prepare representations to its auditors regarding the completeness and accuracy of 

its financial statements. 

39.  Hofmann also approved “price phasing” supplier 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 recognize cost savings that did not 

exist. 

40. In 2017, for example, Hofmann unreasonably did not prevent the execution of 

a transaction in which 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 

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

was aware that his team was contemplating sugar pricing strategies to address pressures from 

the Senior Executive to narrow the gap between forecasted and expected expenses to date.  

Hofmann and the Senior Executive also reviewed presentations highlighting that the $600,000 

in positive impact to KHC’s budget was tied  to “sugar price phasing.”  Similarly, a draft 

presentation that Hofmann reviewed in advance of a trip he took with the Senior Executive to 

visit the supplier highlighted that the deal would “[m]ove some negative impact from Q1 CY17 

through price phasing.”  

41.  The improper recognition of savings for the 59 transactions caused KHC to 

issue materially false and misleading financial statements in reports filed with the SEC on 

annual Forms 10-K for FYs 2015, 2016 and 2017, on Forms 10-Q for the quarterly periods in 

FYs 2016 and 2017 and the first three quarters of FY 2018, and on summary KHC financial 

data for the fourth quarter of 2018 furnished to the SEC on Form 8-K.  By improperly 

recognizing savings from the 59 transactions, the financial statements falsely and materially 

underreported KHC’s costs of goods sold during the Relevant Period. 

VI.      Hofmann’s Internal Accounting Controls and Books and Records 
            Violations 
 

42.  Hofmann knew or should have known about the following KHC internal 

accounting controls, which included: (i) the preparation and signing of contract approval forms 

which were required to communicate the key commercial terms of procurement transactions to 

the controllers, (ii) the review of contract documentation and contract approval forms by 

KHC’s controllers, and (iii) the completion of accurate sub-certifications affirming that there 

were not material transactions, agreements, or accounts that had not been properly recorded in 

KHC’s accounting. 

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43. Hofmann’s approval of supplier agreements and signing of the inaccurate 2018 

sub-certification violated Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 

thereunder. 

 TOLLING AGREEMENTS 

44. Hofmann and the SEC entered into tolling agreements suspending the running 

of any applicable statute of limitations from December 7, 2020 through April 5, 2021; from 

April 6, 2021 through July 8, 2021; and from July 9, 2021 through September 10, 2021.   

COUNT I 
Violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act 

(Negligence-Based Fraud) 
 

45. The SEC realleges and incorporates by reference here the allegations in 

paragraphs 1 through 44. 

46.  Hofmann, in connection with the offer to sell or sale of securities and by the 

use of means or instruments of transportation or communication in interstate commerce or by 

the use of the mails, directly or indirectly and with negligence, obtained 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, and negligently engaged in a transaction, practice, or course of 

business which operated or would have operated as a fraud or deceit on purchasers of KHC’s 

securities.    

47. 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 Senior Executive and Hofmann, among other employees, stock options 

and other stock-based compensation during the relevant period, and bonus compensation that 

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

the bonus criteria given the largest weight for Hofmann 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, the Senior Executive  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. 

48.  By engaging in the conduct described above, Hofmann violated, and unless 

restrained and enjoined will again violate, Sections 17(a)(2) and 17(a)(3) of the Securities Act 

[15 U.S.C. § 77q(a)(2), (3)].  

COUNT II 
Violations of Rule 13b2-1 of the Securities Exchange Act 

(Books and Records) 
 

49.  The SEC realleges and incorporates by reference here the allegations in 

paragraphs 1 through 48. 

50.  Section 13(b)(2)(a) of the Exchange Act [15 U.S.C. § 78m(b)(2)(a)] requires 

issuers of registered securities make and keep books, records, and accounts, which, 

in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets 

of the issuer.  Rule 13b2-1 [17 CFR § 240.13b2-1] issued thereunder prohibits any person from 

directly or indirectly falsifying, or causing the falsification of, any book, record, or account 

required by Section 13(b)(2)(A).   

51. By engaging in the conduct described above, Hofmann violated, and unless 

restrained and enjoined will again violate, Rule 13b2-1 of the Exchange Act [17 CFR  

§ 240.13b2-1]. 

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https://www.law.cornell.edu/definitions/uscode.php?width=840&height=800&iframe=true&def_id=15-USC-1082596930-2067023561&term_occur=999&term_src=title:15:chapter:2B:section:78m
https://www.law.cornell.edu/definitions/uscode.php?width=840&height=800&iframe=true&def_id=15-USC-356045549-491556349&term_occur=999&term_src=title:15:chapter:2B:section:78m


 
 

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COUNT III 
Violations of Rules 13b2-2 of the Securities Exchange Act 

(Directly or Indirectly Making False Statements to Accountants and Auditors) 
 

52. The SEC realleges and incorporates by reference here the allegations in 

paragraphs 1 through 51.  

53.  Exchange Act Rule 13b2-2 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. 

54. By engaging in the conduct described above, Hofmann violated, and unless 

restrained and enjoined will again violate, Rule 13b2-2 of the Exchange Act [17 CFR § 

240.13b2-2]. 

COUNT IV 
Violations of Section 13(b)(5) of the Securities Exchange Act 

(Internal Controls) 
 

55.  The SEC realleges and incorporates by reference here the allegations in 

paragraphs 1 through 54. 

56.  Section 13(b)(5) of the Exchange Act [15 U.S.C. § 78m(b)(5)] prohibits 

individuals from knowingly circumventing or knowingly failing to implement a system of 

internal accounting controls or knowingly falsifying any book, record or account.   

57. By engaging in the conduct described above, Hofmann violated, and unless 

restrained and enjoined will again violate, Section 13(b)(5) of the Exchange Act [15 U.S.C.  

§ 78m(b)(5)]. 

 

 

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PRAYER FOR RELIEF   

WHEREFORE, the SEC respectfully requests that the Court enter a Final Judgment:  

A. Finding that Hofmann violated the federal securities laws alleged in Counts I through 

IV of the Complaint;  

B. Permanently restraining and enjoining Hofmann from violating the federal securities 

laws alleged in the Complaint; 

C. Ordering Hofmann to pay civil monetary penalties pursuant to Section 21(d)(3) of the 

Exchange Act [15 U.S.C. § 78u(d)(3)] and Section 20(d) of the Securities Act [15 

U.S.C. § 77t(d)]; 

D.  Ordering that Hofmann be barred from acting as an officer or director of any public 

company pursuant to the Court’s inherent equitable authority and Section 21(d)(5) of 

the Exchange Act [15 U.S.C. § 78u(d)(5)]. 

E. Granting such other and further equitable relief as the Court may deem just and proper.   

JURY TRIAL DEMANDED 

 Pursuant to Rule 38 of the Federal Rules of Civil Procedure, the SEC hereby demands 

trial by jury. 

Dated:  September 3, 2021   Respectfully submitted, 

      /s/ James P. Connor       
      James P. Connor* 
      Attorney for Plaintiff 

U.S. SECURITIES AND EXCHANGE  
COMMISSION 
100 F Street NE 
Washington, DC 20549 
Tel: (202) 551-8394 

      Email: [email protected] 
  
*Pending admission pro hac vice 
 

Case 1:21-cv-07407   Document 1   Filed 09/03/21   Page 18 of 19



 
 

19 
 

Of counsel: 
Seth M. Nadler  
Thomas B. Rogers  
100 F Street NE  
Washington, DC 20549 
  

Case 1:21-cv-07407   Document 1   Filed 09/03/21   Page 19 of 19


	UNITED STATES DISTRICT COURT
	SOUTHERN DISTRICT OF NEW YORK