NEW YORK, Jan. 13 -- Nine employees or agents of companies that supplied products to U.S. Foodservice Inc. were charged Thursday with falsifying records in an alleged scheme that helped the Columbia-based company inflate earnings by more than $800 million.
The nine men conspired with executives at the Maryland distribution company, which is a subsidiary of Royal Ahold NV, to mislead the firm's auditors, U.S. Attorney David N. Kelley of Manhattan said at a news conference.
Netherlands-based Ahold, which also owns the Giant Food grocery chain, uncovered the fraud in 2003 and eventually restated more than $1 billion in earnings. Two U.S. Foodservice executives pleaded guilty to criminal charges last summer, and the firm's former chiefs of finance and marketing are awaiting trial on charges that they artificially reduced reported expenses from 2000 to 2003 by overstating financial rebates the company was receiving from suppliers.
Thursday's charges by the Justice Department and a parallel action by the Securities and Exchange Commission are part of a broad effort to crack down on auditors, suppliers and bankers who aid and abet corporate fraud, officials said.
"We strive to foster an environment, indeed a culture, in which insiders cannot turn to third parties for help in manipulating financial results," Kelley said. "It is not only a crime for executives to falsify the books of their corporations, it is also a crime to help companies falsify."
In November, a Houston jury convicted four Merrill Lynch & Co. bankers of helping Enron Corp. mislead investors by disguising a loan as the sale of a stake in three barges. In December, the insurance company American International Group agreed to pay $126 million to end inquiries into its sale of insurance products that some public companies used to smooth out their earnings and improve their appearance of fiscal health.
SEC Deputy Director of Enforcement Linda C. Thomsen said the supplier cases "demonstrate the commission's commitment to identifying and bringing enforcement actions against outsiders who, while they may not have orchestrated the fraud, nevertheless violated federal securities laws by agreeing to assist the architects of the fraud."
In the U.S. Foodservice case, the nine men were charged with conspiracy to falsify records for signing letters that were sent to U.S. Foodservice's auditors that purported to confirm that their firms owed millions of dollars in rebates to the distributor.
Two, Peter O. Marion and Mark A. Bailin, were also charged with insider trading and lying. Prosecutors said the two men bought U.S. Foodservice stock after being tipped by insiders that Ahold was about to buy the company.
The others are Kenneth H. Bowman, Timothy Neal Daly, Michael J. Hannigan, John Nettle, Gordon Redgate, Bruce Robinson and Michael Rogers. Marion, the owner of Maritime Seafood Processors Inc., had been charged previously with insider trading, but all of the others are new defendants.