Diamond Foods Director's Suicide Evokes Necessary Questions

| About: Diamond Foods, (DMND)
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Diamond Foods (NASDAQ:DMND) audit committee member Joe Silveira's suicide brings up questions about the company that need to be asked. Like it or not, it has elevated Diamond Food's problems from a shady accounting issue to possible outright criminal fraud. This is now a whole new ball game.

Silveira was "recused" from the accounting probe regarding DMND's hidden payments to walnut growers. The definition of "recuse" from dictionary.com is: to reject or challenge as disqualified to act, especially because of interest or bias.

Silveira was removed from the probe because he managed walnut properties and was a part of walnut grower's groups in California. This made him biased and have a conflict of interest in favor of the walnut growers. Is it possible he was getting some kind of kickbacks?

For his suicide to not have something to do with the accounting probe would be quite a coincidence. If he really cared about the company, he should have left a note saying what his suicide was for. It is possible he was too distraught to leave a note for one reason or another. But what was the reason for his suicide? Investors need to know. The company should have said something like maybe he's having family problems, has a terminal illness, or something of the like to justify a suicide. It absolutely should be known and made public the reason for his suicide. If his tragic death has anything to do with stealing money from the company, there will be serious ramifications.

Since DMND's 52 week high, it has shed over $1.3 billion in market cap. Right now, it has six lawsuits against it. In cases of criminal fraud, those lawsuits have much more credibility. DMND may have to pay out several hundred millions of dollars to the plantiffs out of its pockets. Shareholder attorney Hagens Berman reported it is deepening its investigation related to the Silveira's suicide.

Because of the risk of possible high settlements required of Diamond Foods, creditors might not want to lend DMND funds. This will cause the Pringles deal to go out the window. Then, the company might not be able to make its principal payments. At this point, it would have to sell off its assets piecemeal, get bought out, or file for bankruptcy. It's also interesting to note Diamond's high debt levels, which might highlight management's drive for money. It reported in it's latest quarter ending July 31, 2011, that it has about $500 million in debt and only $3 million in cash and equivalents. It also has a negative tangible book value of -$400 million.

As unpleasant as all this is, these kinds of possibilities need to be talked about and discussed. If Silveira's suicide was because of something unrelated to the company, and the company resolves its accounting mishaps, then everything will turn out alright, and the stock should go back over $35 a share. But if things are seriously wrong, the stock could reach the low 20s or teens. I'm short DMND because I think the easier path is down rather than up right now.

Disclosure: I am short DMND.