Capital Markets

Two Charged with Phony Cheese Sales

The company "was essentially an illusion as a business and a lie for investors," says a prosecutor; government alleges $600 million in mostly ficti...
Stephen TaubJuly 13, 2005

Two former executives of now-defunct cheese manufacturer Suprema Specialties Inc. have been charged in a scheme to book millions of dollars in phony sales to defraud the company’s lenders and investors, according to U.S. Attorney Christopher J. Christie.

Co-founder, former chairman, and former chief executive officer Mark Cocchiola, as well as former chief financial officer and corporate secretary Steven Venechanos, were each indicted on 38 counts of conspiracy, bank fraud, securities fraud, and mail and wire fraud.

According to the criminal indictment, the Paterson, New Jersey-based company booked more than $1 billion in sales between 1994 and January 2002; more than $600 million worth was to customers who participated in the scheme. Most of that $600 million involved fictitious transactions, added the indictment, for which no products were sold or shipped.

Christie noted that Suprema had been widely touted in the financial press as one of the best-performing small companies in America. Suprema’s “apparently astronomic growth,” the U.S. attorney continued, enabled the company to engage in a series of secondary stock offerings, netting the company millions in capital from investors. In the last of those offerings, in November 2001, Cocchiola earned more than $2.5 million and Venechanos made more than $1 million in proceeds directly from stock sales.

The phony cheese sales were also allegedly used to persuade lenders to increase Suprema’s credit line, which grew to as much as $140 million.

“Suprema was essentially an illusion as a business and a lie for investors,” stated Christie, according to the Associated Press. “It was in business to provide a means for fraud.”

The Securities and Exchange Commission also filed a civil complaint against Cocchiola and Venechanos. The SEC alleged that Suprema engaged in fraudulent “round-tripping” transactions that resulted in total misstatements of reported revenue between approximately 35 percent and more than 60 percent for fiscal years 1999, 2000, and 2001 and for the first quarter of fiscal 2002. The commission also alleged that the scheme resulted in total misstatements of accounts receivable by 60 percent or more for the 1999, 2000, and 2001 fiscal years.

Suprema’s scheme started to unravel in late 2001. On the same day in December that year, Venechanos abruptly resigned, as did controller Arthur Christensen. Nasdaq suspended trading of Suprema shares shortly thereafter and delisted the stock in March 2002, after Suprema filed for bankruptcy protection.

In January 2004, three former customers and one former manager of Suprema pleaded guilty to conspiracy, securities fraud, and food-adulteration charges in connection with the criminal scheme, according to the U.S. Attorney. That same month, SEC settled securities fraud and related charges with Christensen, a former operations manager, and several former customers and vendors of Suprema and their owners.

In March 2005, another former customer of Suprema pleaded guilty to criminal charges of conspiracy and securities fraud.

Cocchiola and Venechanos face 60 years in prison and fines of more than $2.5 million if they are convicted on all charges, according to NorthJersey.com.