Accounting & Tax

SEC Settles with Ahold, Execs

The SEC alleged that Ahold overstated net sales by about $30 billion for fiscal years 2000 through 2002, partly as a result of the fraudulent infla...
Stephen TaubOctober 14, 2004

The Securities and Exchange Commission has filed enforcement actions against Royal Ahold NV and three former executives, alleging fraud and other violations stemming from the Dutch food giant’s massive accounting scandal.

The individuals are former chief executive officer and chairman Cees van der Hoeven, former chief financial officer Michiel Meurs, and former executive vice president and board member Jan Andreae. The commission also charged Roland Fahlin, a former member of Ahold’s supervisory board and audit committee, with causing violations of the reporting, books and records, and internal controls provisions of the securities laws.

The SEC alleged that Ahold overstated net sales by about $30 billion for fiscal years 2000 through 2002 as a result of the fraudulent inflation of promotional allowances at U.S. Foodservice, Ahold’s wholly-owned subsidiary; through the improper consolidation of joint ventures through fraudulent side letters, and through other accounting errors and irregularities. For fiscal years 2000 and 2001 and the first three quarters of 2002, Ahold overstated operating income by approximately $3.3 billion and net income by roughly $829 million, added the commission.

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Ahold agreed to settle the action, without admitting or denying the allegations, by consenting to the entry of a judgment permanently enjoining the company from violating the antifraud and other provisions of the securities laws. The commission did not seek a penalty from Ahold in part because of the company’s extensive cooperation with the investigation.

“Ahold self-reported the misconduct and conducted an extensive internal investigation,” the SEC noted in its complaint. “On its own initiative, Ahold expanded its internal investigation beyond the fraud at U.S. Foodservice and the improper joint venture accounting to analyze accounting practices and internal controls at seventeen operating companies.” The SEC also gave Ahold credit for promptly providing internal investigative reports, making personnel available for interviews or testimony, and promptly taking remedial actions that included revising its internal controls and terminating employees responsible for wrongdoing.

Ahold still must deal with an investigation by the Department of Justice, a class-action lawsuit, and a suit by Dutch shareholder group VEB, according to Reuters.

Van der Hoeven and Meurs agreed to settle the commission’s action, without admitting or denying the allegations, by consenting to permanent injunctions permanent bars from serving as officers or directors of a public company. Fahlin consented, without admitting or denying the allegations, to the entry of a cease-and-desist order finding that he was a cause of Ahold’s violations of certain provisions of the securities laws. The SEC will continue to pursue its case against Andreae, reported Reuters.

The SEC said it has not sought penalties against the individuals because of a request by the Dutch Public Prosecutor’s Office, which is conducting a parallel criminal investigation and is seeking to avoid potential double-jeopardy issues. According to the Associated Press, however, in the few financial-mismanagement cases pursued in the Netherlands, that country’s Justice Department has a poor record in winning convictions.