NEW YORK -- The U.S. Attorney's Office here said last week it had charged four former executives of U.S. Foodservice with securities fraud and conspiracy in connection with a scheme to inflate vendor rebates at the Ahold subsidiary.
In revealing the indictments, U.S. Attorney David N. Kelley also said the investigation into the matter was continuing and could involve some of the 125 suppliers that provided promotional allowances to USF during the period in question.
Charged in the indictments were Michael J. Resnick, former chief financial officer, USF; Mark P. Kaiser, former chief marketing officer and executive vice president; Timothy J. Lee, former executive vice president of purchasing; and William F. Carter, former vice president of purchasing. Resnick and Kaiser pleaded not guilty last week. Lee and Carter pleaded guilty to several charges related to their participation in the scheme and are cooperating with the ongoing investigation, the attorney's office said.
Peter O. Marion, founder and president of Maritime Seafood Processors, East Greenwich, R.I., a former supplier to USF, pleaded not guilty to charges of insider trading in a separate scheme that also involved Lee.
The men accused of securities fraud and conspiracy could face several years in prison for each of several counts against them and millions of dollars in fines. Sentencing for Lee and Carter is set for Jan. 25 and 28, 2005, respectively.
All four of the accused former USF executives were dismissed from the company last year. Jim Miller, the former chief executive officer, resigned last May, several months after Ahold first revealed the accounting irregularities at USF. He was not named in the indictments.
The indictments and guilty pleas revealed a plot at USF in which the accused executives are said to have artificially inflated vendor rebates from 2000 to 2003, apparently in an effort to boost their bonuses. As a result, they also artificially inflated the earnings of USF and of Ahold, which acquired USF in 2000.
Last February, Ahold revealed that its earnings had been overstated by an estimated $500 million -- it later revised that figure to more than $1 billion -- mostly because of improperly recorded vendor rebates at USF. Ahold's stock plummeted, and the company has since embarked on an effort to sell off properties around the world to reduce its debt to a level more appropriate for its revised profit structure.
Resnick and Kaiser are accused of falsifying Ahold's financial records concerning promotional allowances received from vendors and coercing suppliers into signing letters that overstate the value of promotional allowances paid to USF, sometimes by millions of dollars. The defendants also allegedly conspired to hide the falsifications from auditors and from Ahold.
Carter is also accused of assisting in persuading vendors to sign letters overstating the amount that they owed for promotional allowances.
Marion was accused of taking part in a separate scheme in which he earned a profit of more than $300,000 by buying and selling shares of USF stock in early 2000 based on insider information provided to him by Lee about Ahold's pending acquisition of USF. Lee pleaded guilty to sharing that information with Marion and at least three other people, who were not identified, in addition to taking part in the scheme to inflate vendor rebates.
The indictments did not identify any of the suppliers who were alleged to have signed false vendor rebates, although the charges against Carter included a reference to a vendor based in Tennessee. The investigation came to regulators' attention when one of the suppliers who was asked to sign a letter containing inflated figures notified authorities.
According to documents from the U.S. Attorney's office, the accused executives from USF in several cases persuaded suppliers to sign letters from auditors containing inflated promotional-allowance information and then sent them letters containing the true amount owed.
The indictments came as federal authorities have been taking a closer look at promotional allowances in the retail industry. Last year, the Securities and Exchange Commission notified several suppliers, including Dean Foods, Frito-Lay and Kraft Foods, that they faced possible civil actions as part of an ongoing investigation into trade practices at Fleming, Dallas. The notifications, which are similar, allege that Dean, also based in Dallas; Frito-Lay, Plano, Texas; and Kraft, Northfield, Ill., helped the food distributor book revenues in the months prior to its filing for Chapter 11 bankruptcy protection in April of last year.