U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19673 / April 27, 2006

Accounting and Auditing Enforcement Release No. 2422 / April 27, 2006

SEC v. Ingles Markets Incorporated, Civil Action No. 1:06cv136 (W.D.N.C., filed on April 27, 2006)

SEC Settles Accounting Fraud Claims With Ingles Markets

The Securities and Exchange Commission today announced it has filed settled accounting fraud charges against Ingles Markets Incorporated, a regional supermarket chain headquartered in Asheville, North Carolina. The Commission's complaint, filed in the Western District of North Carolina, alleges that Ingles' former officer and director, Anthony Federico (now deceased), provided false information to the company's accounting department in 2002 and 2003.

From his office near Atlanta, Federico negotiated refundable, upfront payments with vendors worth millions of dollars at or after the end of certain quarters. The Commission alleges that Federico drafted forms to make it look like the money was nonrefundable and for past performance and signed at least two side letters that he did not provide to Ingles' accounting department. Taken by itself, Federico's misconduct accounted for more than half of the pretax income reported in quarterly reports filed in May 2002 and February 2003 and material amounts of pretax income in annual reports filed in December 2002 and 2003. The Commission alleges that Federico was able to do this in large part because Ingles had no meaningful controls over the recognition of income from upfront vendor payments during the relevant period. Ingles restated its financial statements in February 2005 to correct these and other accounting errors, and implemented internal controls to properly account for upfront vendor payments.

Without admitting or denying the allegations, Ingles consented to the imposition of a court order prohibiting further violations of Section 17(a) of the Securities Act [15 U.S.C. § 77q(a)]; Section 10(b) of the Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. § 78j(b)] and Rule 10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5]; .and Section 13(a) of the Exchange Act [15 U.S.C. Section 78(m)(a)] and Rules 13a-1, 13a-13, and 12b-20 [17 C.F.R. Sections 240.13a-1, 240.13a-13 and 240.12b-20] promulgated thereunder.

The Commission has brought several other vendor allowance cases in recent years, including cases involving Kmart, Fleming and Royal Ahold. See SEC v. Orr [LR-18989] (Dec. 2, 2004); SEC v. Levine [LR-19353] (Aug. 30, 2005); SEC v. Dean Foods [LR-18884) (Sept. 14, 2004); SEC v. Shapiro [LR-19380] (Sept. 15, 2005); SEC v. Bailin [LR-19034] (June 13, 2005); and SEC v. Resnick [LR-19031] (June 11, 2005).

SEC Complaint in this matter