Ex-Officials Of Columbia Firm Charged

Fraud Scheme Alleged At U.S. Foodservice

NEW YORK, July 27 -- Two former top executives of U.S. Foodservice Inc. of Columbia were charged by a federal grand jury Tuesday with a three-year conspiracy to increase their bonuses by overstating earnings by $800 million.

U.S. Foodservice, the nation's second-largest food distributor, is a subsidiary of Royal Ahold NV, which also owns Landover-based Giant Food LLC. When Ahold revealed the accounting fraud in February 2003, its share price fell by more than 60 percent, costing investors more than $6 billion, U.S. Attorney David N. Kelley of Manhattan said as he announced the indictments.

Former U.S. Foodservice chief financial officer Michael J. Resnick and former executive vice president for marketing Mark P. Kaiser will be arraigned Wednesday 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.

"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.

All five men are also facing civil SEC charges.

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."

U.S. Foodservice, which was established in 1989 and grew rapidly through the 1990s through acquisitions, has 29,000 employees around the country and 250,000 customers at more than 100 sites nationwide. In addition to its headquarters in Columbia, the company has distribution facilities in Baltimore and Manassas.

The indictments are part of a broader web of legal problems facing Ahold, which remains under scrutiny by authorities in the United States and the Netherlands over financial problems in its Argentine unit and for the statements of its Dutch former chief executive and finance chief encouraging workers to buy company stock at the same time its finances were deteriorating.

Lawrence Benjamin, the new chief executive of U.S. Foodservice, said the company has cooperated with authorities in their "efforts to hold accountable those individuals who may have violated the law and abused our trust."