SEC Sues 10 Defendants for Securities Fraud Arising From $700 Million Round-Tripping Scheme at Suprema Specialties


Defendants Include Former Suprema Executives and Several Suprema Customers and Vendors Who Participated in the Multi-Year Scheme

Washington, D.C., Jan. 7, 2004 -- The Securities and Exchange Commission today filed securities fraud and related charges against the former controller, former operations manager, and several former customers and vendors of Suprema Specialties, Inc., a now-defunct cheese manufacturer based in Paterson, N.J. The charges arise from a multi-year financial fraud at Suprema that consisted of three parts: (1) a "round-tripping" scheme in which funds were circulated from Suprema through companies purporting to be customers and vendors of Suprema in what were actually fictitious transactions; (2) the relabeling of inventory as premium cheeses to inflate inventory; and (3) the adulteration of Suprema's cheese products with imitation and non-cheese materials, contrary to representations in the company's SEC filings that its products were "natural" or "all-natural" in compliance with federal regulations. As a result of the fraud, Suprema overstated its revenues by approximately $700 million during the period 1998 through late 2001, or 60% of the $1.13 billion in revenues the company reported in its SEC filings during that period. The defendants, including several Suprema customers and vendors who participated in the round-tripping scheme, were charged with, among other things, directly violating the antifraud provisions of the federal securities laws.

"In our action today, we are suing not only Suprema's own executives, but also those who did business with Suprema. This case reinforces the SEC's determination to hold customers and vendors of a public company accountable when they knowingly participate in schemes that defraud the company's shareholders," said Paul R. Berger, Associate Director of the SEC's Division of Enforcement.

Named as defendants in the lawsuit are

  • Arthur Christensen, the former controller of Suprema;
  • John Van Sickell, the former operations manager of Suprema's Paterson, N.J. plant;
  • Robert Quattrone and two private companies he controls called Battaglia & Company, Inc. and Packing Products, Inc.;
  • Lawrence Fransen and a private company he controls called LNN Enterprises, Inc.; and
  • George Vieira, the former chief operating officer of Suprema, and two private companies he controls called California Milk Market and West Coast Commodities, Inc.

The SEC's complaint alleges that defendants Quattrone and Vieira, using the private companies they controlled, knowingly entered into numerous circular round-tripping transactions with Suprema from at least 1998 through early 2002, and that defendant Fransen similarly entered into such transactions with Suprema from at least 2000 through early 2002. The complaint further alleges that, during the respective time periods, Quattrone, Vieira, and Fransen each signed false audit confirms that were provided to Suprema's independent auditors, and each received kick-backs for their participation in the scheme. According to the complaint, the round-tripping transactions involving Quattrone, Vieira, Fransen, and their companies collectively resulted in overstatements of Suprema's reported revenues by approximately 5.75%, 7.41%, 14.25%, 19.51%, and 19.48% in fiscal years 1998, 1999, 2000, 2001, and the first quarter of 2002, respectively.

The SEC's complaint further alleges that from at least 2000 through the first quarter of 2002, Van Sickell relabeled Suprema's inventory, delivered and retrieved checks in person, and created fraudulent paperwork all in furtherance of the round-tripping scheme. According to the complaint, he relabeled imitation cheese products as higher-valued premium cheeses in order to inflate Suprema's inventory, and adulterated the cheese using food starch and partially hydrogenated soybean oil, as well as other fillers, in accordance with ingredient formulas developed by Suprema in response to competitive pressures for lower-priced products. With respect to Christensen, the complaint alleges that from at least 1998 through 2001, he was aware of improprieties in Suprema's cheese transactions, and that from August 2001 through his resignation in December 2001, he assumed responsibility for coordinating the flow of false invoices and checks in the round-tripping scheme. According to the complaint, from the time Christensen resigned until February 2002, Vieira assumed responsibility for coordinating the flow of false invoices and checks in the round-tripping scheme.

The SEC charged all of the defendants with securities fraud in violation of Section 10(b) of the Securities Exchange Act of 1934 and Exchange Act Rule 10b-5, with aiding and abetting Suprema's violations of the periodic reporting, books and records, and internal accounting controls provisions of Exchange Act Sections 13(a) and 13(b)(2)(A) and (B) and Exchange Act Rules 12b-20, 13a-1, and 13a-13; and with aiding and abetting misrepresentations by Suprema's officers and directors to the company's accountants in violation of Exchange Act Rule 13b2-2. Christensen and Van Sickell were also charged with violating the antifraud provisions of Section 17(a) of the Securities Act of 1933 and, along with Vieira, knowingly circumventing internal accounting controls and falsifying corporate books and records in violation of Exchange Act Section 13(b)(5) and Exchange Act Rule 13b2-1.

Without admitting or denying the allegations of the SEC's complaint, all of the defendants have agreed to settle the SEC's charges. Subject to the Court's approval, these settlements would result in judgments ordering permanent injunctive relief against future violations of the applicable federal securities laws, permanent officer and director bars against the individual defendants (with the exception of Christensen, who would be subject to a ten-year bar in recognition of his level of cooperation), and deferment of any disgorgement, interest, or civil penalties until decided by the court upon motion by the SEC at a later date.

The SEC wishes to thank the United States Attorney's Office for the District of New Jersey, the Federal Bureau of Investigation, and the U.S. Food and Drug Administration for their assistance in its investigation, which is continuing.

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Contact: Paul R. Berger, Associate Director (202) 942-4854
Russell G. Ryan, Assistant Director (202) 942-4660

See Also:  Litigation Release 18534; Complaint
Last modified: 1/7/2004