Accounting & Tax

”Not Guilty” Pleas at U.S. Foodservice

At the unit of Dutch supermarket conglomerate Royal Ahold, the former CFO and another executive face federal charges. Two other executives have ple...
Ed ZwirnJuly 29, 2004

Federal regulators and prosecutors are lowering the boom on four executives of U.S. Foodservice, a unit of Dutch supermarket conglomerate Royal Ahold NV. Michael Resnick, the former chief financial officer of the U.S. food distribution company, and Mark Kaiser, a former marketing executive, have pleaded not guilty to federal charges of securities fraud, conspiracy, and misleading regulators with financial statements that inflated the income of the company by more than $800 million.

Two other U.S. Foodservice executives, Timothy Lee and William Carter, have pleaded guilty to similar charges and are expected to cooperate with federal investigators, according to published reports.

In addition, the Securities and Exchange Commission announced that it filed a civil complaint in U.S. District Court for the Southern District of New York citing Resnick, Kaiser, Lee, and Carter for their involvement in the alleged scheme.

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The figure in the SEC complaint, which pegged the overstatement at $700 million or more, differs from the number cited by federal prosecutors because the SEC analyzed slightly different business periods, according to a report in The New York Times.

The commission also alleged that Lee repeatedly disclosed material, nonpublic information regarding Ahold’s April 2000 tender-offer acquisition of U.S. Foodservice. As a result of these tips, an associate of Lee realized profits of at least $363,000 by trading in the stock of U.S. Foodservice, alleged the SEC.

Executives at U.S. Foodservice “went to extraordinary lengths to perpetuate the illusion of stellar financial performance,” said Linda Chatman Thomsen, deputy director of the SEC’s Division of Enforcement, in a statement. “Their fraud created the appearance that they had met their budgets and allowed them to line their own pockets with unearned bonuses.”

Added, Thomas C. Newkirk, associate director of the Division of Enforcement, in a statement: “To cover up their scheme, the defendants needed false confirmations from suppliers… It is disappointing that the defendants so successfully corrupted the audit and confirmation process. Let me note that the commission’s investigation is continuing.”

At a news conference in Manhattan, prosecutors and regulators said they would continue to investigate Ahold, U.S. Foodservice, and its American suppliers. Kraft Foods, General Mills, Tyson Foods, ConAgra Foods, Sara Lee, and H. J. Heinz acknowledge that they have been contacted by regulators and prosecutors, according to the Times.

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