Furthermore, the Securities and Exchange Commission filed a separate civil complaint against the four executives of company. It accused the executives of overstating income by a smaller amount - $700 million - and of pressing many suppliers to help conceal fraud.
The indictments, which followed a yearlong investigation, were a blow to the already beleaguered Dutch parent company, Royal Ahold. The investigations were prompted by a supplier, which complained to its auditors about being pressed into schemes by U.S. Foodservice. In turn, the auditors informed government officials. When Royal Ahold announced it would have to restate its earnings, largely as a result of those misrepresentations, its share price, prosecutors said, plummeted more than 60%, costing investors more than $6 billion, U.S. Attorney David N. Kelley of Manhattan said as he announced the indictments.
Former U.S. Foodservice cfo Michael J. Resnick and former Executive Vice President for Marketing Mark P. Kaiser are to be arraigned today on one count each of conspiracy, securities fraud and making false filings with the Securities and Exchange Commission. Prosecutors said that between 2000 and early 2003, the two executives routinely cut the food distribution company's reported expenses by overstating financial rebates the firm was receiving from suppliers with whom they conspired to mislead U.S. Foodservice's auditors.
Two lower-level purchasing executives, Timothy J. Lee and William F. Carter, have pleaded guilty to participating in the scheme and are cooperating with authorities. Lee also pleaded guilty to insider trading for tipping off U.S. Foodservice suppliers in 2000 that Ahold was going to pay a premium to acquire the then-independent firm. One of the vendors, Peter O. Marion, was separately charged with insider trading. Lee and Carter have substantially cut their exposure to prison by agreeing to cooperate.
"It was a cooking of the books fueled by the greed of the defendants," Kelley said. The four insiders received annual bonuses of $250,000 to $500,000 for meeting the company's "increasingly aggressive" budget goals, he said.
SEC deputy enforcement director Linda C. Thomsen said the "defendants manipulated income; they accelerated income, and in some cases, they simply made it up. When questioned about it, they lied and induced others to lie."
Lawrence Benjamin, the new chief executive of U.S. Foodservice, was quoted as saying the company has cooperated with authorities in their "efforts to hold accountable those individuals who may have violated the law and abused our trust."
Lawyers involved in the case were reported to have observed that criminal and civil charges are likely against two other suppliers that Lee has pleaded guilty to tipping off about the company's sale. Also under investigation is former Foodservice chief executive James L. Miller, who was forced out in May 2003 after the accounting irregularities came to light.
"We're pleased that after a lengthy investigation, criminal charges have not been brought against Jim Miller," said his defense lawyer, Paul Shechtman. "He's personally saddened by the indictment and particularly by the inclusion of Mike [Resnick] in it."
Kelley and Thomsen would not comment directly on future charges, but the prosecutor said, "Obviously we're taking a very broad look, both up the ladder and down the ladder."