A yearlong federal investigation into bankrupt US retailer Kmart has led to two former executives being charged with a US$42m accountancy fraud.

Enio Montini, a former senior vice president and general merchandising manager, and Joseph Hofmeister, a former divisional vice president of merchandising, were accused of making false statements to the Securities and Exchange Commission and lying about the company’s earnings. A statement was issued on their behalf, calling the charges “wrong and unjust”.

The two former executives are accused of conspiring to have the company include a $42.3m payment from one of its vendors in its financial report for the second quarter of 2001. According to the indictment, the false statements to Kmart’s accounting division resulted in Kmart’ operating results being overstated, helping the retailer to meet analysts’ earnings expectations for that period, reported the Associated Press.

 If convicted of securities fraud, the pair each face a maximum sentence of ten years in prison and a $1m fine. The conspiracy and false statements charges each carry maximum penalties of five years in prison and a $250,000 fine.

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