The US Securities and Exchange Commission has announced it has charged nine individuals with aiding and abetting a massive financial fraud at US Foodservice by signing and returning materially false audit confirmations sent to them by the auditors of the Ahold subsidiary.

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The SEC said the action’s defendants are Mark A. Bailin, Kenneth H. Bowman, Timothy Neal Daly, Michael J. Hannigan, Peter O. Marion, John Nettle, Gordon Redgate, Bruce Robinson and Michael Rogers. All nine were employees of or agents for vendors that supplied US Foodservice.


The SEC’s complaints allege that US Foodservice personnel contacted vendors and urged them to sign and return the false confirmation letters. In some cases US Foodservice pressured the vendors; in other cases they provided side letters to the vendors assuring the vendors that they did not owe US Foodservice the amounts reflected as outstanding in the confirmation letters.


The SEC claims that 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 US Foodservice.


“Financial frauds often depend on the assistance of outsiders to succeed and remain undetected. The individuals and salespersons charged today, while not employed by Ahold, helped the company commit a fraud and helped hide that fraud from Ahold’s auditors. By verifying as true information they knew to be false, the defendants corrupted the audit process and helped US Foodservice commit and hide a fraud,” said Linda Chatman Thomsen, deputy director of the SEC’s Division of Enforcement.

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The complaints allege that US Foodservice engaged in a scheme to report earnings equal to or greater than its targets, regardless of the company’s true performance. US Foodservice inflated its promotional allowance income by at least US$700m for fiscal years 2001 and 2002, thereby causing Dutch retailer Ahold to report materially false operating and net income for these periods.


Ahold admitted in February 2003 that massive accounting irregularities had led to the company overstating its earnings. The announcement led to the departure of several top executives and a company-wide investigation.