Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, September 15, 2008

American Italian Pasta Settles Accounting Fraud Charges

The SEC filed several actions charging American Italian Pasta Company ("AIPC"), and its senior executives with securities fraud and other violations of the federal securities laws. The Commission's complaints allege that, from its fiscal year 2002 through the second quarter of its fiscal year 2004, AIPC, AIPC's former chief executive officer Timothy S. Webster, former chief financial officer Warren B. Schmidgall, and former executive vice president of corporate development and strategy David E. Watson, engaged in a fraudulent scheme to mislead the investing public about the growth of the company's earnings and to increase artificially the company's stock price. According to the Commission's complaints, the fraudulent accounting and other errors arising from inadequate internal controls, resulted in the overstatement of AIPC's pre-tax income for the relevant period by approximately $59 million, or 66 percent.

In a related criminal action, the U.S. Attorney's Office for the Western District of Missouri announced today that it resolved its investigation of AIPC and that Webster and Schmidgall both pled guilty to one count of conspiracy to commit wire fraud for their roles in concealing AIPC's true financial condition and filing materially false reports with the Commission. AIPC agreed to resolve the criminal investigation of the company by paying a $7.5 million monetary penalty.

Without admitting or denying the allegations in the Commission's complaints, AIPC, Webster, and Ruskey agreed to settle the matters. The Commission's case against Schmidgall and Watson is ongoing.

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