Saturday, January 15, 2005

Nine Executives Indicted in U.S. Foodservice Accounting Fraud Scheme

Nine executives from a variety of food-supply companies were arraigned on Jan. 13 for their part in an revenue-inflation scheme at U.S. Foodservice, a wholly-owned subsidiary of the Dutch company Royal Ahold N.V. According to an article in the New York Times (Jan. 14):

All the executives are accused of approving documents that claimed U.S. Foodservice, a unit of Royal Ahold, was owed millions of dollars more in promotional allowances - a type of rebate offered by manufacturers to stores and distributors - than was actually the case. The scheme had the effect of inflating U.S. Foodservice's profits, prosecutors say.

The SEC also filed civil fraud charges against the nine defendants, including insider trading charges against one defendant, Mark Bailin, who agreed to pay $2,224,446.51 disgorgement, $751,031.78 prejudgment interest and a $175,000 penalty (SEC Litigation Release).  According to the article, most of the executives are expected to plead guilty.  In July 2004, four U.S. Foodservice executives were charged in connection with the scheme, and two are awaiting trial. 

This is one of the few cases in which employees of the outside vendors have been accused of criminal participation in an accounting scheme, an approach also taken in the Enron Barge trial when executives of Merrill Lynch were charged and convicted of participating in the accounting fraud.  The prosecution is a further signal that the Department of Justice is looking at upstream and downstream participants in accounting misconduct. (ph)

http://lawprofessors.typepad.com/whitecollarcrime_blog/2005/01/nine_executives.html

Fraud, Prosecutions, Securities | Permalink

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