Speech by SEC Staff:
Statement at Press Conference Announcing Civil Fraud Action Against Michael Resnick, Mark P. Kaiser, Timothy J. Lee and William Carter
Linda Chatman Thomsen
Deputy Director, SEC Division of Enforcement
U.S. Securities and Exchange Commission
New York City
July 27, 2004
Today, the Securities and Exchange Commission filed a civil fraud action against Michael Resnick, Mark P. Kaiser, Timothy J. Lee and William Carter. As alleged in our complaint, the defendants engaged in or substantially participated in a scheme to overstate Royal Ahold's income by at least $700 million for at least fiscal years 2001 and 2002. Resnick, Kaiser, Lee, and Carter were top executives at the Columbia, Maryland based wholesale food distributor U.S. Foodservice, a major subsidiary of Ahold. The complaint alleges that the defendants grossly inflated reported profits. The complaint also alleges that the defendants corrupted the independent audit process by inducing numerous suppliers to submit false confirmations to the company's auditors in order to conceal the fraud. The complaint alleges that U.S. Foodservice reported earnings equal to or greater than its budgeted earnings targets, regardless of the company's true performance. The fraudulent scheme to meet targets or "book to budget" was accomplished, we allege, largely through inflated rebate or promotional allowance income to U.S. Foodservice from its vendors. According to the complaint, the defendants manipulated income, they accelerated income and, in some instances, they simply made it up. When questioned about the income, they lied. And, we allege, they induced others to lie too.
The Commission also alleges that Timothy J. Lee engaged in insider trading by repeatedly tipping material, nonpublic information about Ahold's April 2000 tender offer acquisition of U.S. Foodservice. As a result of Lee's tipping, Peter O. Marion, an associate of Lee, realized profits of at least $363,000 from trading in the stock of U.S. Foodservice. Today, the Commission also filed an insider trading case against Marion.
Resnick, Kaiser, Lee and Carter's compensation was, according to the complaint, tied to U.S.Foodservice's ability to meet or exceed it's budgeted earnings targets. Each received a substantial bonus in early 2002 because U.S.Foodservice purportedly met its earnings goals for fiscal year 2001. Each was eligible for a substantial bonus if U.S.Foodservice met earnings targets for fiscal year 2002.
In its action, the Commission seeks to recover those bonuses as well as all ill-gotten gains. The Commission also seeks the imposition of civil money penalties; an order barring Resnick, Kaiser, Lee and Carter from serving as officers or directors of public companies; and an order enjoining each of them from future violations of the securities laws. In its separate action against Marion, the Commission seeks a permanent injunction, disgorgement of all illegal profits from his insider trading and a civil money penalty.
The Commission acknowledges the assistance and cooperation of the United States Attorney's Office 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's investigation is continuing.