Five of the eight people charged in connection with an accounting fraud at discount retailer Kmart Corp. have settled the charges brought against them by the Securities and Exchange Commission.
The SEC filed civil fraud charges in a Michigan District Court last week against three former Kmart executives and five current and former employees of Eastman Kodak Co., Coca Cola Enterprises Inc. and PepsiCo Inc. subsidiaries Pepsi-Cola Co. and Frito-Lay Inc.
The SEC alleged that the Kmart executives prematurely recognized millions of dollars worth of promotional vendor allowances, fraudulently boosting revenue by $24 million -- or 10 percent -- in the fourth quarter of fiscal 2001. The SEC alleged that the representatives from the companies participated in the fraud by co-signing false and misleading accounting documents, and executing side agreements, and, in some instances, providing false or misleading third-party confirmations to Kmart's independent auditor, PricewaterhouseCoopers. Kmart restated its financial statements after filing for bankruptcy to correct the accounting errors.
All five agreed to settle without admitting or denying the SEC's charges. Albert M. Abood, former divisional vice president of non-perishable products in Kmart's Food and Consumables division, agreed to pay a $50,000 civil penalty. Michael K. Frank, former divisional vice president and general merchandise manager of Kmart's Food and Consumables Division consented to a five-year officer and director bar. The SEC said that it didn't impose a civil penalty on Frank because of his inability to pay. Darrell Edquist, a former vice president and general manager of Eastman Kodak, agreed to pay a $55,000 civil penalty. Randall M. Stone, a former national account manager for Frito-Lay, agreed to pay a $30,000 civil penalty. Thomas L. Taylor, a former director of sales for Frito-Lay, agreed to pay a $25,000 civil penalty.
The others charged were John Paul Orr, former divisional vice president of Kmart's photo division; David C. Kirkpatrick, a former national sales director for Coca Cola Enterprises Inc.; and David N. Bixler, a former national sales director of Pepsi-Cola and current vice president and general manager of PepsiCo.
The SEC's Kmart investigation is continuing.
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