Kansas distillery sued by Miami police and firefighters, allegedly misled investors
Correction: This story has been updated to more accurately reflect the allegations in the lawsuit. The suit alleges that investors, not the distillery itself, lost millions of dollars.
The distillery, headquartered in Atchison, Kansas, told the City of Miami Fire Fighters’ and Police Officers’ Retirement Trust that it was making money.
In news releases, in regulatory fillings, in investor calls, it told investors everything was fine.
But MGP Ingredients Inc. investors were suffering millions in losses.
Last week, the Miami, Florida, retirement trust filed a class action lawsuit against the distillery in U. S. District Court for Kansas, naming former CEO Augustus C. Griffin, former CFO Thomas K. Pigott and current CFO Brandon M. Gall as defendants. The lawsuit accuses MGP of filing false and misleading statements and violating federal securities laws.
The retirement trust provides retirement and disability benefits to more than 2,000 firefighters and police officers.
A spokesman for the distillery and attorneys for the retirement fund did not return a request for comment in time for publication Tuesday.
MGP previously made news when a toxic gas cloud was released from its facility in Atchison in 2016.
MGP, along with Harcros Chemicals Inc., pleaded guilty to violating the Clean Air Act and agreed to pay a $1 million fine. A sentencing hearing is set for May 27 in the U.S. District Court for Kansas.
Months of misleading statements
In 2015, MGP announced a four-year process to make and sell aged whiskey that would be ready in 2019. The distillery assured investors it had strong demand for its inventory and would have no difficulties selling the entire inventory, the lawsuit said.
The value of MGP’s inventory of aged whiskey was more than $70 million as 2019 approached, according to the lawsuit.
But it was struggling to find customers.
In February 2019, Griffin said during an earnings call that MGP was confident it would be able to deliver on its promises because they had already begun transacting sales.
On May 1, 2019, MGP first reported declining aged whiskey sales and continued to report “disappointing” financial results and sales over the next three quarters while telling investors it still had strong demand for the whiskey. Its consolidated operating income decreased by more than 18% and its gross profit by more than 12%.
In July 2019, when MGP reported it would lower its operating income growth from 15% to 10%, due to poor sales of the whiskey, its stock price dropped by about 26%. It continued to tell investors demand was strong.
At the beginning of this year, MGP reduced its 2019 sales and earnings guidance by about $24 million and $9 million, respectively.
Sales for 2019 were expected to be $362 million — $29 million short of the forecast $391 million — and an analyst found the distillery didn’t seem to have sold any of its aged whiskey in 2019.
In February 2020, MGP told investors that it had experienced “disappointing” results and was “unsuccessful in transacting a large portion of the aged whiskey sales” that it had forecast, according to the lawsuit.
Then, its stock price tumbled and investors lost millions.
The lawsuit accuses the company of making “materially false and misleading statements and omissions,” as it engaged in “a scheme to deceive the market.” The price of the company’s stock was artificially inflated because of those statements, the lawsuit alleged.
Griffon, Pigott and Gall each knew of MGP’s financial losses but “recklessly disregarded that material facts were being misrepresented or omitted.”
The lawsuit asks for compensatory damages, reasonable costs and expenses and a jury trial.
The Star’s Katie Bernard contributed to this report.
This story was originally published April 14, 2020 at 11:02 AM.
