SEC declines to fine Ahold

Dutch firm's handling of errant Md. unit praised

Accounting case is settled

U.S. Foodservice scandal dealt company huge blow

October 14, 2004|By Andrea K. Walker | Andrea K. Walker,SUN STAFF

Royal Ahold NV, the Dutch food conglomerate riven by an accounting fraud at its Columbia subsidiary, has reached a settlement with the Securities and Exchange Commission, ending a major chapter in the nearly two-year-old scandal.

Under the agreement, Ahold won't pay any fines or admit wrongdoing for its actions, which caused it to restate earnings by $1.2 billion over three years.

The SEC said Ahold wasn't fined because the company cooperated with investigators.

The agency noted that Ahold reported the misconduct and conducted an extensive internal investigation that went beyond its U.S. Foodservice unit in Columbia. Ahold also gave up attorney-client privilege, made personnel available for interviews and fired employees responsible for the irregularities, the SEC said.

The SEC also settled the cases of three Dutch executives: Cees van der Hoeven, Ahold's former chief executive officer; A. Michiel Meurs, its former chief financial officer; and Roland Fahlin, a former member of Ahold's supervisory board and audit committee.

Meurs and van der Hoeven, who were fired last year, were barred by the SEC from serving as officers or directors with any public company in the United States.

The SEC wasn't able to settle with a fourth executive, Jan Andreae, an Ahold former executive vice president and executive board member, and will proceed with litigation, the federal agency said.

"This is an important step on the road to recovery," Peter Wakkie, a member of Ahold's executive board, said in a phone interview yesterday. "The conclusion of this investigation represents a significant step for us."

Ahold, which owns Giant Food Inc., the No. 1 supermarket chain in the Baltimore-Washington market, still faces a string of lawsuits and investigations.

Last month, Ahold reached a $10 million settlement with Dutch prosecutors. The huge international grocery firm also is under investigation by the Justice Department. In July, federal prosecutors in New York announced indictments against five former U.S. Foodservice executives.

Shareholders have sued Ahold in federal court in Maryland and investors have sued the company in the Netherlands.

"They're still not out of the woods yet," said Timothy Attenborough, an analyst with Exane BNP Paribas in London. "I would describe today's settlement as modestly good news. It's one more issue they can put behind them."

Ahold revealed in February last year that executives at U.S. Foodservice had improperly booked hundreds of millions of dollars in volume rebates and promotions that food manufacturers pay to distributors in exchange for space on the shelves.

The SEC found that U.S. Foodservice provided auditors with false information by persuading their vendors to confirm overstated promotional allowances.

The Manhattan U.S. attorney's office also alleged that some executives blocked internal auditors from reviewing records related to the allowances.

A company-wide probe forced Ahold to restate its earnings by $1.2 billion, which in turn sent company shares down 60 percent and caused a $6 billion decline in market value. Most of the problem was related to the irregularities at U.S. Foodservice.

Ahold has since removed 39 executives and managers and disciplined 60 others at U.S. Foodservice in an effort to restore its credibility and return it to profitability.

The SEC said it did not seek penalties against the three Ahold executives it investigated because it feared the penalties would raise double-jeopardy issues and imperil a Dutch court's criminal prosecution of the three. The trial against van der Hoeven began yesterday.

"The commission felt that it was more significant to have these people prosecuted criminally," said James T. Coffman, assistant director for the division of enforcement at the SEC.

Investigators also noted that the problems at U.S. Foodservice began a year before Ahold acquired the company in April 2000. "As a company they are responsible for making sure they have the appropriate controls in place," Coffman said. "But it was a factor that currently nobody at the company now had any responsibility for."

The SEC contends that Ahold hasn't escaped penalty by having fines waived. The company and its employees are under court order not to commit violations again. If they do so, they'll be considered in contempt of court, said Thomas C. Newkirk, the SEC's associate director for the division of enforcement.

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