Coffee Roaster Tells of SEC’s Concerns

Farmer Bros. Co. management for the first time acknowledged that the Securities and Exchange Commission had raised questions about whether the cash-rich coffee roaster should be complying with the more stringent disclosure rules that govern investment firms.

Whether Farmer Bros., which lists about $298 million in cash and securities -- an amount equal to about 70% of its assets -- should comply with the Investment Company Act of 1940 has been one of the key issues in a bitter fight between institutional and dissident shareholders and the Torrance-based company’s board of directors.

A proposal by mutual fund Franklin Mutual Advisors to force Farmer Bros. to adhere to the Investment Company Act failed at the company’s annual shareholder meeting a year ago. Unlike operating companies such as manufacturers and retailers, investment companies must adhere to strict disclo- sure and corporate governance rules designed to protect investors.

In an SEC filing Monday, Farmer Bros. said the agency had raised “concerns” that the business might be acting as “an unregistered securities company.”

Other than to say that it disagrees, Farmer Bros. did not elaborate on the extent of the SEC’s concerns.

A spokesman for the SEC also declined to comment except to say that the wording used by the company could cover everything from a formal investigation to a review by the division that examines corporate regulatory filings.

Still, critics of Farmer Bros. seized on the disclosure as evidence that the company may have violated federal law.

Gary Lutin, a New York investment banker who manages an Internet forum for Farmer Bros. shareholders, said, “They have had two years to come up with some reason why they shouldn’t be considered an investment company and they haven’t.”

Farmer Bros. is under fire from certain shareholders about loans to its Employee Stock Ownership Plan, which they say is being used as a tool to increase management’s control over the company.

If the SEC deems that Farmer Bros. is an investment company, those loans may have violated federal securities law.