Nine vendors face criminal and civil charges for allegedly helping U.S. Foodservice Inc., a subsidiary of Dutch grocer Royal Ahold NV, inflate earnings by more than $800 million.
The U.S. Attorney's Office for the Southern District of New York filed criminal charges against the nine vendors, accusing them of conspiring with executives of Columbia, Md.-based U.S. Foodservice to create false accounting records by signing false audit letters that overstated money owed to the food distributor.
Those charged were Mark A. Bailin, Kenneth H. Bowman, Timothy Neal Daly, Michael J. Hannigan, Peter O. Marion, John Nettle, Gordon Redgate, Bruce Robinson and Michael Rogers. Bailin and Marion were also charged with insider trading.
The Securities and Exchange Commission charged all nine vendors with aiding and abetting "a massive financial fraud" by signing the false audit reports. The SEC said that the amounts overstated in the confirmations were often inflated by millions of dollars and by more than 100 percent. Bailin, Hannigan, Nettle, Redgate and Rogers agreed to settle with the SEC, without admitting or denying the allegations, by consenting to permanent injunctions and payment of a $25,000 penalty.
Last October, the SEC filed civil fraud charges against the Dutch grocer and three of its former executives in connection with the accounting scandal. The SEC charged Ahold with fraudulently fabricating hundreds of millions of dollars of earnings and charged former chief executive and chairman Cees van der Hoeven, former chief financial officer and executive board member A. Michiel Meurs, and former executive vice president and executive board member Jan Andreae with fraudulently overstating sales by billions of dollars. The commission also charged Roland Fahlin, a former member of Ahold's supervisory board and audit committee, with causing violations of securities laws.
The SEC said that Ahold overstated net sales for fiscal years 2000 through 2002 by roughly $30 billion. For fiscal years 2000 and 2001 and the first three quarters of 2002, Ahold overstated operating income by about $3.3 billion and net income by approximately $829 million. Ahold agreed without admitting or denying the allegations to settle the SEC's charges. The company agreed to be permanently barred from violating securities laws. The SEC said that it didn't seek a penalty from Ahold, in part because of the company's "extensive" cooperation with its investigation.
Van der Hoeven and Meurs agreed to settle the charges, without admitting or denying the allegations, by consenting to permanent injunctions against violations of securities laws and to judgments permanently barring them from serving as officers or directors of public companies. Fahlin consented, without admitting or denying the allegations, to a cease-and-desist order finding that he was a cause of Ahold's violations of certain provisions of the securities laws.
The SEC said that it didn't seek penalties in the enforcement actions against the executives at the request of the Dutch Public Prosecutor's Office, which is conducting a parallel criminal investigation in the Netherlands, because of potential double jeopardy issues under Dutch law.
Register or login for access to this item and much more
All Accounting Today content is archived after seven days.
Community members receive:
- All recent and archived articles
- Conference offers and updates
- A full menu of enewsletter options
- Web seminars, white papers, ebooks
Already have an account? Log In
Don't have an account? Register for Free Unlimited Access