Two former top executives of U.S. Foodservice Inc. pleaded not guilty Wednesday to charges they falsely inflated the Columbia distributor's revenue to win bonuses, causing the firm's Dutch parent Royal Ahold NV to overstate income by more than $800 million over three years.
Former chief financial officer Michael J. Resnick and former executive vice president for marketing Mark P. Kaiser were arraigned in Manhattan federal court on charges of conspiracy, securities fraud and making false filings to the Securities and Exchange Commission. They were released on $500,000 bond apiece. No trial date has been set.
Prosecutors contend the two men and two lower-level purchasing executives -- Timothy J. Lee and William F. Carter -- falsified the amount of rebate money that U.S. Foodservice was receiving from suppliers to meet budget targets to which their bonuses were tied. Carter and Lee have already pleaded guilty to participating in the scheme and to conspiring with suppliers to mislead U.S. Foodservice's auditors.
One supplier, Peter O. Marion, also was arraigned yesterday and pleaded not guilty to charges that he committed insider trading after being tipped by Lee about Ahold's 2000 purchase of U.S. Foodservice, the nation's second-largest food distributor.
Attorneys for Kaiser, 47, and Resnick, 42, said after the hearing that their clients intend to fight the charges against them. "We believe the evidence will show Mr. Kaiser is innocent of the charges against him. We look forward to presenting a vigorous defense on his behalf," said Peter H. White, one of Kaiser's attorneys.
News of accounting irregularities at Ahold and U.S. Foodservice shook European markets and the food industry in early 2003. Ahold's stock lost more than 60 percent of its value, and the firm's chief executive, Cees van der Hoeven, and chief financial officer, Michiel Meurs, were forced out.
Ahold's U.S. grocery store units, which include Giant Food LLC and Stop & Shop Supermarket Co., have not been implicated in the accounting scandal.
Investigators are still probing the roles played by U.S. Foodservice's vendors and Kaiser's and Resnick's superiors, including former U.S. Foodservice chief executive James L. Miller, said sources familiar with the probe who spoke on condition of anonymity because of the ongoing nature of the investigation.
Prosecutors said this week that they are looking at all 125 rebate contracts from 2000 to 2003. Some of the industry's giants, including Sara Lee Corp., Tyson Foods Inc. and ConAgra Foods Inc., have acknowledged being contacted by investigators, although it is unclear whether any employees of larger companies have been implicated.
But so far, the scandal has not forced major changes in the pricing system in which suppliers rebate part of their revenue to the distributors that promote and sell their products to customers such as restaurants and cafeterias. Sysco Corp., the nation's largest food distributor, reassured investors that it was properly accounting for rebates, and many smaller suppliers and distributors immediately tightened up their rebate tracking systems. Since then, concerns have died down substantially, analysts said.
"Most of those issues are off the table," said Jason D. Whitmer, who follows the food industry for FTN Midwest Research. "I think [the U.S. Foodservice scandal] is what it is. There isn't a lot of direct relevance to the marketplace."