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UPS Settles SEC Complaint Over Improper Valuation of Freight Business for $45 Million
UPS has settled with the SEC for $45 million over allegations of improperly valuing its freight unit, misrepresenting earnings, and violating accounting standards.
UPS Headquarters Photo from UPS webpage.
United Parcel Service (UPS) has agreed to pay a $45 million civil penalty to settle allegations by the U.S. Securities and Exchange Commission (SEC) that it improperly valued its UPS Freight unit, resulting in misrepresentation of earnings. The Sandy Springs-based logistics company did not admit or deny the SEC's claims but agreed to additional compliance measures as part of the settlement.
The SEC alleged that UPS failed to follow generally accepted accounting principles (GAAP) in valuing its freight business, one of its poorest-performing units. According to the SEC, the company violated federal accounting and disclosure requirements by not recognizing a significant goodwill impairment in 2019.
In its findings, the SEC stated that UPS had internally determined in 2019 that UPS Freight was likely to sell for between $350 million and $650 million. This valuation indicated a nearly $500 million impairment of goodwill, or the decline in value of intangible assets associated with the business. However, UPS chose to rely on an external consultant’s valuation, which placed the unit's worth at approximately $2 billion, without providing the consultant with sufficient information for an accurate assessment. The SEC asserted that this higher valuation allowed UPS to avoid recording a goodwill impairment that year, which would have materially lowered its earnings and equity.
The SEC highlighted further inconsistencies in 2020, noting that UPS failed to acknowledge potential goodwill impairment while in active negotiations to sell UPS Freight for a price significantly below its carrying value. During the third quarter of that year, the company reported no changes suggesting impairment, even though it had received a nonbinding term sheet in October 2020 to sell UPS Freight for $800 million, subject to potential downward adjustments.
In January 2021, UPS announced the sale of UPS Freight to Canadian trucking company TFI International for $800 million, further reinforcing the SEC's claims of improper valuation practices.
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Melissa Hodgman, SEC Associate Director, emphasized the importance of accurate valuation practices, stating, “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.”
Under the terms of the settlement, UPS has agreed to implement new training requirements for employees and directors, retain a compliance consultant, and cease and desist from future violations. While UPS acknowledged the settlement in a statement, the company said the agreement “will not have a material effect on our business, financial condition, results of operation, or liquidity” and noted that it had previously disclosed the investigation.
Although the SEC investigation into UPS is now closed, the regulator stated that its broader investigation is ongoing. UPS has agreed to cooperate with the SEC by providing requested documents and facilitating interviews or testimony from its officers, employees, and directors.
