U.S. FOODSERVICE 4 former executives face fraud charges
They are accused of reporting supplier payments that didn't exist.
NEW YORK (AP) -- In the latest criminal charges springing from alleged fraud in corporate America, four ex-executives of a subsidiary of supermarket giant Royal Ahold NV are accused of inflating earnings by $800 million.
The former executives of U.S. Foodservice Inc., including its former chief financial officer, conspired to inflate earnings by reporting $800 million in fake rebates from suppliers, prosecutors said Tuesday.
Two have already pleaded guilty to fraud charges, and two others were to surrender to authorities today and face a federal judge.
"This is a litany of criminal charges which have seemingly become an accepted business plan in much of corporate America," said Pasquale D'Amuro, assistant director of the New York office of the FBI.
Charges
Former executive vice president Timothy Lee and former vice president William Carter pleaded guilty within the past week in sealed proceedings, prosecutors said.
Former CFO Michael Resnick and former executive vice president for purchasing Mark Kaiser were charged with conspiracy, securities fraud and making false filings. They were to surrender to the FBI today.
Netherlands-based Ahold's U.S. properties include the Tops Markets, Stop & amp; Shop and Giant supermarket chains. U.S. Foodservice is one of the largest distributors of food products in the country, providing to restaurants and other customers.
Ahold said in early 2003 that it had overstated its earnings by more than $1 billion, mostly because of the fraud at U.S. Foodservice, and its stock lost 60 percent of its value. About $6 billion in market value evaporated.
U.S. Foodservice routinely buys products from suppliers at full price, and the suppliers refund some of the price in rebates known as promotional allowances.
Bonuses
The four defendants were accused of reporting promotional allowances that never existed, lying to company auditors and getting suppliers to submit false paperwork.
U.S. Attorney David Kelley said the four men received performance bonuses of up to $500,000 when the company met "increasingly aggressive" earnings estimates.
"It was a cooking of the books fueled by the greed of the defendants," Kelley said.
Sometimes, Kelley said, the men would "brazenly draw into the ledger any promotional allowance numbers they wanted in order to close the gap between real earnings and those they had targeted."
In addition, prosecutors charged Peter Marion, a former supplier to U.S. Foodservice, with insider trading for buying and selling stock in the company based on advance knowledge of its merger with Ahold in 2000.
Marion profited by $363,000 from the tips, which prosecutors say were provided by Lee, the former executive vice president.