U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19031 / January 11, 2005
Accounting and Auditing Enforcement
Release No. 2166 / January 11, 2005
Securities and Exchange Commission v. Resnick, et al., Civil Action No. 1:04-cv-05824-MGC (S.D.N.Y.) (July 27, 2004)
SEC SETTLES ACTIONS AGAINST TWO PERSONS IN CONNECTION WITH FINANCIAL FRAUD AND INSIDER TRADING AT U.S. FOODSERVICE SUBSIDIARY OF ROYAL AHOLD
On December 28, 2004 the Securities and Exchange Commission settled an enforcement action alleging fraud and other violations relating to the financial fraud and insider trading at Royal Ahold's U.S. Foodservice subsidiary with Timothy J. Lee and William Carter.
On July 27, 2004 the SEC filed a complaint in the United States District Court for the Southern District of New York alleging that Michael Resnick, Mark P. Kaiser, Lee and Carter engaged in or substantially participated in a scheme to overstate Ahold's income by $700 million or more in SEC filings and other public announcements for at least fiscal years 2001 and 2002. Resnick, Kaiser, Lee, and Carter were top executives at Columbia, Maryland based wholesale food distributor U.S. Foodservice, a major subsidiary of Ahold. (Litigation Release No. 18797) The complaint alleges that they grossly inflated reported profits and induced numerous suppliers to submit false confirmations to the company's auditors in order to conceal their fraud. The Commission alleges that Resnick, former CFO, Kaiser, former Chief Marketing Officer, Lee, former Executive Vice President of Purchasing, and Carter, former Vice President of Purchasing, violated the antifraud provisions; aided and abetted violations of the reporting provisions; and violated and aided and abetted violations of the books and records provisions of the Securities Exchange Act of 1934 ("Exchange Act"). The Commission also alleges that Lee engaged in repeated instances of tipping material, nonpublic information regarding Ahold's March 2000 tender offer for U.S. Foodservice.
Lee and Carter settled the Commission's action, without admitting or denying the allegations in the complaint, by consenting to permanent injunctions, officer and director bars, and payments of $235,000 disgorgement and $96,567 disgorgement and prejudgment interest, respectively. Lee was enjoined from violating Sections 10(b), 13(b)(5), and 14(e) of the Exchange Act and Rules 10b 5, 13b2-1, and 14e-3 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13b2-2 thereunder. Carter was enjoined from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b 5 and 13b2-1 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13b2-2 thereunder.
The Commission will continue to litigate against the non-settling defendants. 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, the New York Office of the Federal Bureau of Investigation, and the U.S Department of Labor, Employee Benefits Security Administration.
The Commission also filed a related complaint against Peter O. Marion in connection with insider trading of USF securities (Litigation Release No. 18796). The Commission also filed actions against Royal Ahold and others on October 13, 2004 (Litigation Release No. 18929).