WASHINGTON -- The Securities and Exchange Commission here last week said it settled its charges of securities fraud and other violations against Ahold, Zaandam, Netherlands, and three individuals related to Ahold's overstatement of profits from 2000 to 2003.
The SEC also said it would pursue its case against one former Ahold executive.
None of the parties who settled have admitted wrongdoing, and no monetary penalties were assessed. The SEC issued injunctions against Ahold and two top executives, Cees van der Hoeven, former chairman and chief executive officer, and Michiel Meurs, former chief financial officer, against future violations of certain securities laws. Van der Hoeven and Meurs also have agreed to injunctions permanently barring them from serving as officers or directors of a public company that has stock that trades in the U.S. Penalties for violations of these injunctions could result in fines or incarceration, a spokesman for the SEC told SN.
The SEC said the executives were not asked to pay monetary penalties at the request of Dutch regulators, who are conducting a parallel criminal investigation and wanted to avoid potential double-jeopardy issues. Ahold was not penalized in part because of its cooperation in the case.
Roland Fahlin, a former director and a member of the board's audit committee, also settled charges that he caused violations of the reporting, books and records and internal controls provisions of securities laws.
The SEC said it would litigate its securities-fraud case against Jan Andreae, former executive vice president, Ahold.
Larry Byrne, a partner in White & Case, New York, which represents Ahold in the SEC's investigation, said Ahold's extensive cooperation in the case helped the company avoid a monetary penalty.
"I think in the current climate, most [recent settlements] have involved a substantial penalty," he told SN.
He declined to comment on an ongoing criminal investigation by the U.S. Attorney's office in New York, in which Ahold continues to cooperate. In that case, prosecutors in July charged four former executives of U.S. Foodservice, an Ahold subsidiary at the heart of its accounting scandal, and a former Ahold supplier with securities fraud and conspiracy. Criminal investigations in the Netherlands are continuing against Ahold and several former executives after the company last month settled charges by the Dutch public prosecutor related to the case.
The SEC's allegations concerned the overstatement of profits at U.S. Foodservice through the inflation of vendor allowances, which it said began at least a year before Ahold acquired the food-service distribution concern, and the fraudulent consolidation of joint ventures. The settlements involving van der Hoeven, Meurs and Fahlin and the ongoing litigation against Andreae all concern the joint ventures, which were between Ahold and several non-U.S. companies.
The SEC said the men committed fraud by signing "side letters" to Ahold's independent auditors stating that Ahold had control of the joint ventures, allowing the company to recognize the revenues from them. However, the men also signed "rescinding letters" to the partners stating that Ahold did not have control.
The SEC charges that Meurs signed all but one of the control and rescinding letters, knowing that auditors were unaware of the rescinding letters, and that van der Hoeven co-signed one of the rescinding letters and was "at least reckless" in not knowing that the auditors were unaware of its existence. Both Andreae and Fahlin were accused of fraud in relation to letters exchanged with ICA, Ahold's Scandinavian joint venture.
"This case is yet another deplorable example of a massive, multifaceted fraud at a major corporation," said Thomas C. Newkirk, associate director of the SEC's Division of Enforcement, in a prepared statement. "This case is also an example of the clear corporate advantage to conducting a comprehensive internal investigation and cooperating with the SEC."
The statement detailed Ahold's efforts to cooperate in the investigation, praising the company for its prompt attention to SEC inquiries, for granting access to current and former Ahold employees, and for its waiving of attorney-client privilege in its internal investigation. The SEC also noted that Ahold "promptly took remedial actions," including revising its internal controls and terminating employees found responsible for wrongdoing.
In a prepared statement, Peter Wakkie, chief corporate governance counsel, Ahold, said, "Ahold has worked very had over the past two years to improve its systems and controls and implement other remedial measures to prevent any recurrence of these unfortunate events. The conclusion of the SEC's investigation into Ahold represents another significant step for Ahold's 'Road to Recovery,"' as the company refers to its strategy to overhaul its operations in the wake of the scandal.