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U.S. Securities and Exchange Commission


Litigation Release No. 19721 / June 7, 2006

Accounting and Auditing Enforcement Release No. 2440 / June 7, 2006

SEC v. Brady M. Schofield, Civil Action No. 06 CV 4273 (S.D.N.Y.) (June 7, 2006)


Schofield Also Agrees to Pay $728,232 to Settle Related Insider Trading Charges

The Securities and Exchange Commission today filed a settled civil action against Brady M. Schofield, alleging that he aided and abetted a massive financial fraud by signing and sending false audit confirmations to the auditors of U.S. Foodservice, Inc., a subsidiary of Royal Ahold (Koninklijke Ahold N.V.). Schofield was also charged with insider trading.

The Commission's complaint alleges that U.S. Foodservice personnel contacted vendors and urged them to sign and return the false confirmation letters. In some cases U.S. Foodservice pressured the vendors; in other cases they provided side letters to the vendors assuring the vendors that they did not owe U.S. Foodservice the amounts reflected as outstanding in the confirmation letters. The letters clearly stated that the confirmations were being used in connection with the annual audit and the letters directed the defendants to return the confirmations directly to the company's auditors.

Schofield, who owned and operated several companies that supplied U.S. Foodservice, aided and abetted the fraud by signing and sending to the company's independent auditors confirmation letters that he knew materially misstated the amounts of promotional allowance income paid or owed to U.S. Foodservice. The amounts misstated in the relevant confirmations were wrong by millions of dollars and, in some instances, by more than 100%.

The complaint further alleges that U.S. Foodservice engaged in a scheme to report earnings equal to or greater than its targets, regardless of the company's true performance. U.S. Foodservice inflated its promotional allowance income by at least $700 million for fiscal years 2001 and 2002 and thereby caused Ahold to report materially false operating and net income for these periods. The annual audit confirmation process at U.S. Foodservice was systematically corrupted to help keep the fraud from being discovered.

The Commission's complaint against Schofield also alleges that during February and March of 2000, after learning of material, nonpublic information about Ahold's intention to acquire U.S. Foodservice, Schofield traded in the shares of U.S. Foodservice. The complaint alleges that he made illegal profits of approximately $299,206.40.

Schofield has agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to a judgment permanently enjoining him from violating Sections 10(b) and 14(e) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 14e-3 thereunder and from aiding and abetting any violation of Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder. The judgment orders Schofield to disgorge illegal trading profits of $299,206.40, pay prejudgment interest of $129,820.14, and pay a civil monetary penalty of $299,206.40 for insider trading. The judgment further orders Schofield to pay a separate civil monetary penalty of $25,000 for signing false audit confirmation letters.

In a related action, the U.S. Attorney's Office for the Southern District of New York also announced that it has filed criminal charges against Schofield for insider trading and conspiracy to falsify books and records.

The Commission's investigation is continuing. The Commission acknowledges the assistance and cooperation of the Office of the United States Attorney for the Southern District of New York and the New York Office of the Federal Bureau of Investigation.

For additional information on related actions, see Administrative Release No. 34-53326 (February 16, 2006), Litigation Release No. 19454 (November 2, 2005), Litigation Release No. 19034 (January 13, 2005), Litigation Release No. 18929 (October 13, 2004), and Litigation Release No. 18797 (July 27, 2004).

Contact Persons:

Scott W. Friestad
Associate Director, Division of Enforcement
(202) 551-4962

James T. Coffman
Assistant Director, Division of Enforcement
(202) 551-4953

Charles D. Stodghill
Assistant Chief Litigation Counsel, Division of Enforcement
(202) 551-4413

SEC Complaint in this matter



Modified: 06/07/2006