Royal Ahold Execs Fined After Conviction
Monday, May 22, 2006; 1:52 PM
AMSTERDAM, Netherlands -- The executives in charge as Dutch retailer Royal Ahold NV plunged into one of Europe's worst financial scandals were convicted of fraud Monday but let off with a fine and no prison time, as judges found they bore little criminal guilt.
The court fined former CEO Cees van der Hoeven and former CFO Michiel Meurs 225,000 euros ($290,000) each and gave them both nine-month suspended sentences.
The verdict comes more than three years after Ahold _ known for operating grocery stores around the world, including the Stop & Shop and Giant chains in the United States _ went to the brink of bankruptcy in February 2003.
Van der Hoeven and Meurs resigned then, saying the company's earnings reports from 1999-2002 were not reliable. Ahold shares lost two-thirds of their value overnight and it eventually emerged the company had overstated earnings by more than 1 billion euros in 1999-2002, mostly by inflating sales at its U.S. Foodservice Inc. subsidiary.
The Dutch judgment Monday covered a different, smaller part of the scandal _ Ahold's claims to investors it had control of companies in Brazil, Argentina and Scandinavia when it only owned 50 percent of them and control was in dispute.
Consolidating such companies in earnings reports was legal under Dutch rules then in place, though not according to generally accepted accounting principles in the U.S. or new international rules that went into effect at the start of 2006.
Because the men were not personally enriched by the fraud, Presiding Judge Frans Bauduin said comparisons between Ahold and Enron Corp. or Italy's Parmalat SpA were "wrong in all respects."
However, the men "greatly damaged the trust that their employees, customers, investors, board of supervisors and accountants placed in them," Bauduin said.
"What a disappointment," Peter de Vries, head of the Dutch shareholders' organization VEB, said in a written reaction. He called the fines a "pittance," given that Van der Hoeven is estimated to have 43 million euros ($55 million) in personal wealth.
"This judgment sends a signal to managers that no matter what they do, the risk of a heavy punishment is minimal," he said. "In the United States, a conviction on the same facts would have led to a prison term of more than 10 years. This is Holland at its smallest."
Prosecutors, who had asked for 14-month prison terms, said they will appeal the ruling.
Van der Hoeven said he was disappointed with the verdict and he would also appeal. But "it's been a purifying experience," he said. "I've learned from it."