washingtonpost.com
Royal Ahold Won't Be Prosecuted
Case Involving U.S. Foodservice Ends Firm's Legal Woes

By Brooke A. Masters
Washington Post Staff Writer
Friday, September 29, 2006

NEW YORK, Sept. 28 -- Royal Ahold NV will not face criminal prosecution for an $800 million accounting fraud at its Columbia-based subsidiary U.S. Foodservice Inc., the U.S. attorney in Manhattan announced Thursday.

The Dutch company, which also owns Giant Food LLC, was forced to restate income of more than $800 million in 2003 after it was revealed that executives at U.S. Foodservice had systematically inflated promotional allowances to meet earnings targets.

The company settled with the Securities and Exchange Commission in 2004 and agreed last year to pay $1.1 billion to settle a class-action shareholder lawsuit. Thursday's announcement that neither Ahold nor U.S. Foodservice, which supplies restaurants and cafeterias, would be prosecuted puts to bed the company's major remaining legal problem.

"This is very good news for the company and allows the company to finally put these matters behind it and to continue to move forward with its business," said Lawrence Byrne, the New York lawyer who represented Ahold in the negotiations.

Michael J. Garcia, the U.S. attorney for the Southern District of New York, said in a news release that he had taken into account Ahold's cooperation, the shareholder settlement and that the company reported the problems to authorities upfront.

From 2000 to 2003, U.S. Foodservice officials repeatedly overstated the value of rebates the company was receiving from its suppliers. That in turn inflated the company's earnings. When the fraud was announced in February 2003, Ahold's stock price fell more than 60 percent.

Sixteen former executives and suppliers of U.S. Foodservice have been charged with crimes and 13 of them, including former finance chief Michael J. Resnick, have pleaded guilty. Mark P. Kaiser, the former marketing chief, is scheduled to go on trial Oct. 10.

Under the terms of the agreement, Ahold and its executives must continue to cooperate with federal prosecutors.

View all comments that have been posted about this article.

© 2006 The Washington Post Company