The Securities and Exchange Commission has filed complaints against 13 individuals for allegedly participating in a massive financial fraud at the U.S. Foodservice subsidiary of Dutch food conglomerate Royal Ahold.
All were employees of or agents for vendors, many of them household names, that supplied U.S. Foodservice.
The SEC has now filed complaints against 30 individuals, alleging that they aided and abetted a fraud that enabled Ahold to overstate income by about $700 million for fiscal years 2001 and 2002. More charges may be yet to come, the SEC added.
In the latest actions, the commission alleged that “the annual audit confirmation process at U.S. Foodservice was systematically corrupted to help keep the fraud from being discovered.” Specifically, the SEC accused the 13 individuals of signing, and returning to the company’s independent auditors, confirmation letters that they knew materially overstated promotional allowance income paid or owed to U.S. Foodservice. The amounts overstated in the confirmation letters were often inflated by millions of dollars and by more than 100 percent, the regulator added.
According to the SEC, in some cases U.S. Foodservice pressured the vendors; in other cases it provided side letters assuring the vendors that they did not owe U.S. Foodservice the amounts reflected as outstanding in the confirmation letters. “The letters clearly stated that the confirmations were being used in connection with the annual audit” and “directed the defendants to return the confirmations directly to the company’s auditors,” the commission stated in its complaint.
Nine of the individuals each agreed to settle the commission’s action, without admitting or denying the allegations, by consenting to permanent injunctions and payment of a $25,000 penalty. They include:
• Carl Allen, co-owner and chief executive officer of Heritage Bag
• Donald Childers, sales manager for several divisions of Sara Lee Foods
• John Crowder, corporate account manager for Con Agra Foods-Poultry Group (formerly Pierce Foods)
• Chris Jakubek, sales manager for Sara Lee Bakery Group
• John King, an independent food broker
• Steve LeBarron, an independent food broker
• Patrick Penderghast, director of corporate accounts and national accounts
for a vendor not identified by the SEC
• Frank Riggio, vice president for corporate accounts for another unnamed vendor
• Richard Vecchia, vice president of sales for Sugar Foods
The SEC added that it will litigate a contested action against the four individuals who did not settle:
• Gary G. Bell, vice president for business development at Hunt-Wesson Foodservice
• Anthony Holohan, sales representative for C. F. Sauer Foods
• Joseph Grendys, owner of Koch Poultry
• Michael Smith, corporate accounts manager for Citrus World
Bell, Holohan, Grendys, and Smith could not immediately be reached for comment.