9 Vendors Charged in Ahold Fraud
Nine food vendors were charged Thursday with helping to inflate the earnings of a U.S. subsidiary of Dutch grocery giant Royal Ahold by signing false audit confirmation reports.
The charges came six months after prosecutors accused four executives of the subsidiary, U.S. Foodservice Inc., of inflating earnings by $800 million by reporting fake rebates from the vendors.
U.S. Atty. David Kelley of Manhattan said the new charges came as a result of “looking upstream and downstream for other participants in the scheme,” adding, “We continue to swim in both directions.”
Most of the nine men are expected to plead guilty, Kelley said.
Ahold’s U.S. properties include the Stop & Shop and Giant supermarket chains. U.S. Foodservice is one of the largest distributors of food products in the country, selling to restaurants and cafeterias. It also distributes products under the McCormick, Heinz and Nestle brands.
Ahold said in 2003 that it had overstated its earnings by more than $1 billion, mostly because of the alleged fraud at U.S. Foodservice. Its stock lost 60% of its value on the day of the announcement.
In the new charges, the nine men worked for vendor companies that sold food and food products to U.S. Foodservice.
Among those charged were John Nettle, former account manager for General Mills Inc., and Michael Rogers, former vice president of sales for Tyson Foods Inc.
The nine were accused of signing false audit confirmation letters that overstated the amount of money owed to U.S. Foodservice through “promotional allowance” agreements.
U.S. Foodservice routinely buys products from suppliers at full price, and the suppliers refund some of the price in rebates known as promotional allowances.
The falsified confirmation letters, submitted in 2001 and 2002, allowed the fraud at U.S. Foodservice to continue for perhaps a year, Kelley said.
A U.S. Foodservice spokeswoman did not return a call for comment.
Bill Michael, a lawyer for Nettle, said his client was “extremely sorry for his actions and intends to work with the Department of Justice and the [Securities and Exchange Commission] to resolve these matters as quickly as possible.”
In a statement, a spokeswoman for Rogers said that he had been pressured by a U.S. Foodservice representative to sign the audit letters and that he did not intentionally participate in the alleged fraud.
The nine were charged with taking part in a scheme to falsify books and records. Two of the nine were also charged with conspiring to trade on inside information relating to a 2000 Ahold stock offering.
All nine voluntarily surrendered to authorities Thursday morning.
Separately, the SEC filed civil charges against the nine, charging them with aiding “a massive financial fraud” by signing the false audit reports.
In July 2004, prosecutors charged four former executives of U.S. Foodservice with conspiring to inflate earnings.
Two of them, former Chief Financial Officer Michael Resnick and former Chief Marketing Officer Mark Kaiser, are awaiting trial. Two other former vice presidents, Timothy Lee and William Carter, pleaded guilty.
