U.S. charges 7 in plot at Ahold's U.S. Foodservice

Vendors accused of assisting $800 million accounting fraud

November 03, 2005|By LORRAINE MIRABELLA | LORRAINE MIRABELLA,SUN REPORTER

Federal prosecutors investigating an accounting scandal at Columbia-based U.S. Foodservice filed criminal charges yesterday against seven people who worked for company suppliers and allegedly helped cover up the fraud to maintain lucrative business relationships.

They are the latest charges in a case that damaged Royal Ahold NV, one of the world's largest retailers and the parent company of U.S. Foodservice Inc.; triggered management changes at Ahold and at Foodservice, the second-largest U.S. distributor of food and food products to restaurants and cafeterias; and in January led to the indictments of nine other vendors.

Prosecutors said the seven individuals charged yesterday, some of whom worked as independent food brokers, helped perpetrate the $800 million accounting fraud engineered by executives at U.S. Foodservice, whose Dutch owner also operates Giant Food LLC, the top supermarket chain in the Baltimore-Washington area.

Ahold discovered and announced the inflated earnings in early 2003. The company settled with the Securities and Exchange Commission last year without paying a fine.

The seven vendors, including a Baltimore-area food broker, allegedly signed audit confirmation letters that overstated amounts either earned by or owed to U.S. Foodservice, according to charges filed by the U.S. attorney in federal District Court in New York.

In that way, the government alleges, the vendors helped U.S. Foodservice overstate earnings and assets from 2000 to 2003.

Larry Stone, 59, president of HSH Sales, a private Glen Burnie-based company, was among those charged yesterday with conspiracy to falsify books, records and accounts, according to court documents.

The other six charged are:

Brian Crowley, 50, of Wellesley, Mass., president of the Food Services Division at Ken's Foods Inc.

Robert Henuset, 55, of Yardley, Pa., director of sales, Crowley Foods LLC

Frank Lysiak, 60, of Buffalo, N.Y., former director of national distributor sales at Rich Products Corp.

Ernie Rosenberg, 57, of Exton, Pa., a key account manager at J.R. Simplot Co.

Ritchie Langfield, 67, of Sisters, Ore., an independent food broker

Dale Schulz, 55, of Wayzata, Minn., an independent food broker.

Prosecutors said Stone conspired with a former U.S. Foodservice chief marketing officer, Mark P. Kaiser, to falsely verify more than $35 million in "promotional allowances" owed to U.S. Foodservice by two suppliers.

Stone acted as an independent broker for Simplot, a Boise, Idaho, supplier of potatoes and vegetables to U.S. Foodservice, according to prosecutors. He could not be reached yesterday.

Kaiser is one of four former executives of U.S. Foodservice who was criminally charged last year. He and former Chief Financial Officer Michael J. Resnick await trial next year on charges of conspiracy, securities fraud and making false SEC filings.

Two former vice presidents, Timothy J. Lee and William F. Carter, pleaded guilty in July 2004 to charges of participating in a conspiracy to commit securities fraud.

"We are vigorously pursuing not only those who falsify the company books but also those who help others to do so," Michael J. Garcia, U.S. attorney for the Southern District of New York, said in announcing the latest charges. "The desire to maintain a lucrative business relationship is no excuse for providing false information to corporate auditors."

Representatives of U.S. Foodservice and Royal Ahold could not be reached yesterday.

The SEC also filed similar civil complaints against the same suppliers yesterday. The agency said U.S. Foodservice personnel contacted the vendors and urged them to sign the false letters, in some cases pressuring the vendors and in other cases providing side letters assuring the vendors that they did not owe U.S. Foodservice the amounts shown in the confirmation letters. The amounts were often inflated by millions of dollars.

All seven have agreed to settle with the SEC, without admitting or denying the allegations, and to pay penalties of $25,000 each, the SEC said. But that settlement is a separate matter from the federal criminal charges.

According to yesterday's indictments, U.S. Foodservice bought products to sell to its customers at full prices but the suppliers often refunded a portion of the price in the form of negotiated rebates, known as promotional allowances.

Entries in U.S. Foodservice's books by its executives either inflated the amounts of promotional allowance income earned or inflated amounts owed to U.S. Foodservice by the vendors, with some entries inflated by millions of dollars for each vendor, prosecutors said.

Among the charges, prosecutors alleged that Stone signed a letter confirming that U.S. Foodservice had earned about $5.18 million in promotional allowances in the fiscal year that ended Dec. 29, 2001, from Crowley Foods, a Binghamton, N.Y., supplier of dairy products, rather than the amount - less than $1 million - actually earned, and that Crowley owed U.S. Foodservice $5.16 million in promotional allowances as of Dec. 29, 2001, when Crowley owed less than about $10,000.lorraine.mirabella@baltsun.com

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