UPS Fined $45M by SEC Over Improper Valuation Practices

United Parcel Service Inc. (UPS) has agreed to pay a $45 million fine to the U.S. Securities and Exchange Commission as a result of allegations of misassessment of its freight operations in 2019 and 2020. The SEC investigation revealed that UPS did not comply with ​generally accepted ​accounting ​principles (GAAP), resulting in misleading financial results that overstated the value of its load division.

The SEC revealed that UPS was based on an external consultant’s assessment of its freight business less than freight without providing essential information, including its internal analysis. UPS’ own evaluations suggest that the company would sell no more ​than $650 ​million, indicating close to $500 million in goodwill. On the other hand, the ​consultant estimated the value of freight at $2 billion, which significantly increased its valuation. The incorrect assessment meant that UPS had not ​recorded ​the necessary deterioration in traffic, which would have reduced its reported revenues and other financial parameters.

In 2020, UPS ​negotiated a ​non-binding timesheet to sell freight for $800 million, confirming ​the need to deteriorate. However, the company continued to use the inflated ​valuation provided by the consultant. This practice was reported by the SEC as a violation of the ​standards ​of critical reporting, internal control and disclosure, contrary to sections 17 (a) (2) and (3) of the Securities Act and the ​provisions of ​the Exchange Act.

Under the agreement, UPS did ​not accept or deny the SEC’s findings, but agreed to stop further violations, ​take enforcement action, and review its ​fair value estimates and disclosure practices by third parties. ​The company also stated that it had registered a fee for the deterioration of non-commercial goodwill in 2020 ​and stressed that the agreement would not significantly affect its financial or commercial status. UPS sold its freight operations to TFI International in 2021 for $800 million.

The case highlights the importance ​of a reliable assessment of goodwill to provide investors with a ​clear picture of ​a ​company’s performance. Melissa Hodgman, Assistant Director of the SEC, said: “It is essential that companies develop reasonable value estimates and neglect goodwill if necessary. UPS failed to meet these obligations, repeatedly ignoring its own well-founded sales price estimates. ESA’s ongoing investigation of this issue reflects ​its commitment to accountability in financial reports.