SEC Press press_release 8 KB 4,838 chars

SEC Charges Seven Individuals with Aiding and Abetting Financial Fraud at Royal Ahold's U.S. Foodservice Subsidiary for Signing And Returning False Audit Confirmations

Release: 2005-157
Caption: Securities and Exchange Commission v. False Audit Confirmations, et al.

summary

Seven vendor employees—Brian Crowley, Robert Henuset, Ritchie Langfield, Frank Lysiak, Ernie Rosenberg, Dale Schulz, and Larry Stone—aided and abetted a $700 million financial fraud at Royal Ahold’s U.S. Foodservice by knowingly signing false audit confirmations that overstated promotional allowance income by over 100%, leading to SEC civil penalties of $25,000 each and criminal conspiracy charges from the U.S. Attorney’s Office.

paragraph

The SEC charged seven vendor employees with aiding and abetting a $700 million fraud at U.S. Foodservice, a subsidiary of Royal Ahold, by signing and returning false audit confirmations that inflated promotional allowance income by more than 100% during fiscal years 2001 and 2002. U.S. Foodservice personnel pressured vendors and provided side letters assuring them the owed amounts were fictitious, yet the individuals knowingly sent misleading confirmations directly to auditors to conceal the fraud. All seven settled with the SEC by consenting to permanent injunctions and paying $25,000 penalties each without admitting or denying guilt, while the U.S. Attorney’s Office simultaneously filed criminal charges for conspiracy to falsify books and records.

narrative

Seven vendor employees—Brian Crowley, Robert Henuset, Ritchie Langfield, Frank Lysiak, Ernie Rosenberg, Dale Schulz, and Larry Stone—were charged by the SEC with aiding and abetting a $700 million financial fraud at U.S. Foodservice, a major subsidiary of Royal Ahold, by signing and returning materially false audit confirmations that overstated promotional allowance income by over 100% during fiscal years 2001 and 2002. U.S. Foodservice personnel actively orchestrated the deception by pressuring vendors and providing side letters that assured them the outstanding amounts reflected in the confirmations were fictitious, yet the vendors still signed and returned the documents directly to auditors, knowing they were false. This systematic corruption of the audit confirmation process helped conceal the fraud from external auditors and enabled Ahold to report materially false operating and net income. All seven individuals settled the SEC’s civil charges by consenting to permanent injunctions and paying $25,000 penalties each, without admitting or denying the allegations. Simultaneously, the U.S. Attorney’s Office for the Southern District of New York filed criminal conspiracy charges against them for falsifying books and records. The SEC’s investigation, which began with charges against top U.S. Foodservice executives in 2004, had already implicated nine other third parties in similar misconduct by January 2005, bringing the total number of non-Ahold individuals charged to sixteen. The case underscored the SEC’s commitment to holding third parties accountable for undermining the integrity of the audit process, with officials warning that truthful responses to audit confirmations are non-negotiable in financial reporting.

Enriched metadata

Scheme: financial-fraud (100%)
Court: Southern District of New York
Outcome: settled
Civil penalty: $25,000

Classified financial-fraud(confidence 100%). EDGAR detection: forms 10-K/10-Q/8-K/NT 10-K· recall 67% / precision 23%. detection rule →

Extracted insights

Dollar amounts 2

$700.00M $700 million $100M–$1B
$25K $25,000 $10K–$100K

Entities 5

person false audit confirmations
person scott friestad
agency Securities and Exchange Commission
person susan markel
agency U.S. Attorney's Office For The Southern District Of New York

Triples 19

Sec Charges Seven Individuals
Seven Individuals Aided And Abetted Financial Fraud at Royal Ahold's U.S. Foodservice Subsidiary
Seven Individuals Signed And Returned False Audit Confirmations
U.S. Foodservice Personnel Contacted Vendors
U.S. Foodservice Personnel Urged Vendors to Sign and Return the False Confirmation Letters
U.S. Foodservice Provided Side Letters to Vendors
Seven Individuals Aided And Abetted Fraud by Signing and Sending Confirmation Letters
Seven Individuals Agreed to Settle Commission's Action by Consenting to Permanent Injunctions and Payment of a $25,000 Penalty
U.S. Attorney's Office for the Southern District of New York Announced Criminal Charges against All Seven Individuals for Conspiracy to Falsify Books and Records
Seven Individuals Charged with Conspiracy to Falsify Books and Records
Scott Friestad Demonstrated Commission's Continued Scrutiny of Third Parties Who Help Companies Commit and Hide Financial Fraud
Scott Friestad Raised the Number to Sixteen Non-Ahold Individuals Against Whom the SEC Has Brought Charges for Misrepresenting Financial Information to Ahold's Independent Auditors
Susan Markel Reminded Recipients of Audit Confirmations of the Importance of Returning Nothing But Truthful Information to Auditors
U.S. Foodservice Engaged In A Scheme to Report Earnings Equal to or Greater Than Its Targets
U.S. Foodservice Inflated Promotional Allowance Income by at Least $700 Million for Fiscal Years 2001 and 2002
U.S. Foodservice Caused Ahold to Report Materially False Operating and Net Income for These Periods
Annual Audit Confirmation Process at U.S. Foodservice Was Systematically Corrupted to Help Keep the Fraud from Being Discovered
Sec Filed Enforcement Actions Against Nine Other Individuals Alleging They Aided and Abetted the Same Financial Fraud by Signing and Returning Materially False Audit Confirmations
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 in Sec Filings and Other Public Announcements for at Least Fiscal Years 2001

View original SEC press releasesec.gov

Extracted body text (4,838c)

SEC Charges Seven Individuals with Aiding and Abetting Financial Fraud at Royal Ahold's U.S. Foodservice Subsidiary for Signing And Returning False Audit Confirmations FOR IMMEDIATE RELEASE 2005-157 Washington, D.C., Nov. 2, 2005 - The Securities and Exchange Commission today filed enforcement actions against seven individuals alleging they aided and abetted a massive financial fraud by signing and returning materially false audit confirmations sent to them by the auditors of the U.S. Foodservice, Inc. subsidiary of Royal Ahold (Koninklijke Ahold N.V.). All of the individuals charged, Brian Crowley, Robert Henuset, Ritchie Langfield, Frank Lysiak, Ernie Rosenberg, Dale Schulz, and Larry Stone, were employees of or agents for vendors that supplied U.S. Foodservice. The Commission's complaints allege 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. Each of the individuals aided and abetted the fraud by signing and sending to the company's independent auditors confirmation letters that they knew materially overstated the amounts of promotional allowance income paid or owed to U.S. Foodservice. The amounts overstated in the confirmations were often inflated by millions of dollars and by more than 100%. All seven have each agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to permanent injunctions and payment of a $25,000 penalty. Also today, the U.S. Attorney's Office for the Southern District of New York announced criminal charges in this matter against all seven individuals for conspiracy to falsify books and records. "These actions demonstrate the Commission's continued scrutiny of third parties who help companies commit and hide financial fraud. Today's actions raise the number to sixteen non-Ahold individuals against whom the SEC has brought charges for misrepresenting financial information to Ahold's independent auditors. The use of third party confirmations is an important part of the audit process, and the Commission will hold accountable those who work to subvert it," said Scott Friestad, Associate Director of the Commission's Division of Enforcement. "As we enter the upcoming audit season, recipients of audit confirmations are reminded of the importance of returning nothing but truthful information to auditors," said Susan Markel, Chief Accountant of the Commission's Division of Enforcement. The complaints allege 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. On Jan. 13, 2005, the SEC filed enforcement actions against nine other individuals alleging they aided and abetted the same financial fraud by signing and returning materially false audit confirmations. (Litigation Release No. 19034). 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 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, Md., based wholesale food distributor U.S. Foodservice, a major subsidiary of Ahold (Litigation Release No. 18797). The Commission also filed actions against Royal Ahold and others on Oct. 13, 2004 (Litigation Release No. 18929). 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. See also: Litigation Release Contacts: Scott W. Friestad, Associate Director, Division of Enforcement, (202) 551-4962 James T. Coffman, Assistant Director, Division of Enforcement, (202) 551-4953 http://www.sec.gov/news/press/2005-157.htm Home | Previous Page Modified: 11/02/2005

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