The largest beef producer in the US, IBP Inc, announced yesterday that it is suing two former executives of its Chicago-based DFG Foods unit over allegations that the men inflated DFG’s financial results by more than US$50m to conceal fraudulent activities.
Andrew J. Zahn, the former head of DFG, and Philip Sexauer, the former CFO, are named as defendants in the suit, which IBP explains accuses them of making “numerous false statements to conceal their fraud [and engagement] in self-dealing and embezzlement for personal gain”.
Much of this activity is alleged to have taken place prior to IBP’s acquisition of Diversified Food Group, Cohen’s Kosher Foods and Restauranic Inc. to form DFG in October 1998.
The suit contends that the conduct of the men cost the meatpacker more than US$70m, and IBP is seeking compensation as well as punitive damages and salary forfeitures.
In a statement realised yesterday, Zahn vowed to fight the lawsuit “tooth and nail”.
“I expect we will prove that [DFG’s immediate parent company] Foodbrands’ senior management had knowledge of and approved all accounting methods undertaken by DFG,” he added.
The lawsuit, which was filed in the US District Court in Chicago, has emerged from the botched merger deal between the South Dakota-based meat packer and US poultry giant Tyson Foods Inc. In January, Tyson agreed to purchase IBP for US$3.2bn, only to back out of the deal in March when it emerged that IBP had discovered irregularities in DFG the previous September and had notified the Securities and Exchange Commission (SEC).
Tyson argued that IBP concealed problems at its subsidiary and failed to notify it of a federal accounting probe. A judge in Delaware Chancery Court ruled on 15 June however that Tyson should complete the proposed buyout.
The acquisition is now valued at about US$2.7bn, and should be completed with the next two months.