DETROIT Jury will hear cases against 2 accused of conspiring to inflate Kmart earnings

Prosecutors say the executives' actions led to the filing of a fraudulent SEC report.
DETROIT (AP) -- Eight months after the first criminal charges to come out of the federal probe into Kmart's bankruptcy, a jury is expected to begin hearing arguments about whether two former executives conspired to inflate the discount retailer's earnings.
Enio A. "Tony" Montini Jr., 51, and Joseph Hofmeister, 53, are accused of securities fraud, conspiracy and making false statements to the Securities and Exchange Commission.
The government says Montini and Hofmeister helped Kmart meet Wall Street's earnings expectations during the second quarter of 2001 -- boosting its earnings by 6 cents a share by causing the company to improperly record a $42.3 million payment from vendor American Greetings Inc. Kmart declared bankruptcy in January 2002.
Who they were
Montini, of Rochester Hills, Mich., is a former senior vice president and general merchandise manager of Kmart's drugstore division, and Hofmeister, of Lake Orion, Mich., is a former divisional vice president of merchandising.
In 2000, the government says Montini and Hofmeister negotiated with American Greeting and Hallmark Cards Inc. to make one of the companies Kmart's sole supplier of greeting cards. A five-year deal making American Greetings the supplier brought Kmart the $42.3 million payment during the second quarter of 2001.
According to the government, the men's statements to Kmart's accounting and auditing divisions about the payment resulted in Kmart's filing a fraudulent quarterly report with the SEC. In May 2002, Kmart restated its earnings in part because of the payment, which prosecutors say should have been spread over five years.
The indictment claims the two executives "employed devices, schemes and artifices to defraud ... and engaged in acts, practices and courses of business which operates as a fraud and deceit upon investors who purchased and sold shares of Kmart stock."
Following procedure
But in court filings, lawyers for the men argue that they were following Kmart's accounting procedures. Furthermore, they say the decision on how to handle such a payment -- which the government says shouldn't have been fully booked in the quarter -- is an issue that hasn't been resolved among accountants.
"That reasonable people can differ about the permissible or even 'proper' accounting for the payment is clear evidence that it ought not and cannot form the basis for a false statement ... or a predicate for conspiracy," they wrote. "Put simply, there is no crime."
Potential sentences
If convicted, Montini and Hofmeister each face a maximum sentence of 10 years in prison and a $1 million fine on the securities fraud charge. The conspiracy and false statements charges carry maximum penalties of five years in prison and a $250,000 fine.