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Friday, January 14, 2005

SEC charges nine with fraud at US Foodservice

Nine people who worked for suppliers to Ahold, the world's fourth largest supermarket group, have been charged by US authorities with collusion in its massive accounting fraud.

The people were yesterday accused by prosecutors of conspiring with executives at US Foodservice, Ahold's US distribution subsidiary, to create false accounting records that inflated earnings by more than $800m (€603m). The nine who face include Timothy Daly, a former vice-president at Michael Foods; John Nettle, former account manager at General Mills; and Michael Rogers, a former vice-president at Tyson Foods.

Ahold said in February 2003 that significant accounts irregularities meant the Dutch group may have overstated its earnings by $500m. It later revised the amount to more than $1bn.

The Securities and Exchange Commission, the US financial regulator, said in October that Ahold overstated its net income by $829m between 2000 and 2002 due to fraud at US Foodservice.

David Kelley - a member of President George W. Bush's corporate fraud taskforce - who announced the criminal charges, said: "Today's charges should send a strong reminder to companies and executives across the country that it is not only a crime to falsify your own books, it is also a crime to help other companies falsify theirs."

The alleged fraud at US Foodservice centres on so-called promotional allowances, which are paid by food-makers to retailers and distributors in return for meeting sales targets. The allowances reduce the cost of sales, and so can boost profits.

Criminal and civil charges made against four former executives at US Foodservice last July pointed to collusion with the company's suppliers to exaggerate the amounts owed to it under the promotional allowances. The fraud came to light when Deloitte, Ahold's auditor, queried documentation between US Foodservice and its suppliers.

Mr Kelley, US attorney for the southern district of New York, alleged that certain US Foodservice chiefs induced the nine to sign letters that purported to confirm fictitious promotional allowances. The letters were then passed to Deloitte.

The nine people had agreed to plead guilty to the charges. Two of the nine - Mark Bailin, Rymer International Seafood's president and Peter Marion, president of Maritime Seafood Processors - were also charged with insider trading in Ahold shares.

posted by Brian Moran @ 1:17 PM   23 comments

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