Diamond removes CEO, CFO after nut payment probe

The company, maker of Emerald nuts, Kettle chips and Pop Secret popcorn, also said that earnings for its 2010 and 2011 fiscal years will need to be restated to account for the payments.

The result of the probe has thrown into doubt the company's deal to buy the Pringles potato chip business from Procter & Gamble Co. .

Chief Executive Michael Mendes and Chief Financial Officer Steve Neil have been placed on administrative leave, the company said in a statement, adding that it was seeking permanent replacements for the two men.

Diamond named director Rick Wolford as acting chief executive and Michael Murphy of consulting firm Alix Partners as acting finance chief.

The company is being investigated by the U.S. Securities and Exchange Commission over the accounting. In addition, the Wall Street Journal reported that U.S. prosecutors have launched a criminal inquiry.

Diamond's audit committee found that a payment of about $20 million to walnut growers in August 2010 and another amount of about $60 million in September 2011 were not booked in the correct periods, the company said.

The company has been besieged with questions about whether the booking of the payments was intended to make the company look better while it negotiated to buy Pringles from P&G.

A spokesman for P&G said the Diamond announcement was "breaking news" to the company and that it was considering what steps to take next.

"The information released by Diamond Foods is very disappointing," P&G spokesman Paul Fox said. "Pringles remains a valuable asset and it has attracted considerable interest from other outside parties."

"We need to be focused on building Pringles and on its employees." Those employees would move to Diamond under terms of the deal.

Diamond shares fell to $21.87 in after hours trading from Wednesday's Nasdaq close of $36.66.

(Reporting by Mihir Dalal in Bangalore and Brad Dorfman in Chicago; Editing by Saumyadeb Chakrabarty and Steve Orlofsky)