U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19034 / January 13 2005

Accounting and Auditing Enforcement
Release No. 2167 / January 13, 2005

Securities and Exchange Commission v. Mark A. Bailin, Civil Action No. 1:05CV00053 (KK) (D.D.C.) (January 13, 2005)

Securities and Exchange Commission v. Kenneth H. Bowman, Civil Action No. 1:05CV00054 (KK) (D.D.C.) (January 13, 2005)

Securities and Exchange Commission v. Timothy Neal Daly, Civil Action No. 1:05CV00055 (KK) (D.D.C.) (January 13, 2005)

Securities and Exchange Commission v. Michael J. Hannigan, Civil Action No. 1:05CV00056 (KK) (D.D.C.) (January 13, 2005)

Securities and Exchange Commission v. Peter O. Marion, Civil Action No. 1:05CV00057 (KK) (D.D.C.) (January 13, 2005)

Securities and Exchange Commission v. John Nettle, Civil Action No. 1:05CV00058 (KK) (D.D.C.) (January 13, 2005)

Securities and Exchange Commission v. Gordon Redgate, Civil Action No. 1:05CV00059 (D.D.C.) (January 13, 2005)

Securities and Exchange Commission v. Bruce Robinson, Civil Action No. 1:05CV00060 (KK) (D.D.C.) (January 13, 2005)

Securities and Exchange Commission v. Michael Rogers, Civil Action No. 1:05CV00061 (KK) (D.D.C.) (January 13, 2005)

Securities and Exchange Commission v. Mark A. Bailin, Civil Action No. 05 CV 286Berman (S.D.N.Y.) (January 13, 2005)

NINE INDIVIDUALS CHARGED BY THE SECURITIES AND EXCHANGE COMMISSION WITH AIDING AND ABETTING FINANCIAL FRAUD AT ROYAL AHOLD'S U.S. FOODSERVICE SUBSIDIARY FOR SIGNING AND RETURNING FALSE AUDIT CONFIRMATIONS. ONE ALSO CHARGED WITH INSIDER TRADING

The Securities and Exchange Commission today filed enforcement actions against nine 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.). The actions filed name as defendants 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 of these individuals were employees of or agents for vendors which 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 percent.

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.

The complaints allege aiding and abetting violations of Sections 10(b), 13(a) [in most cases], 13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20 [in most cases], and 13b2-1 thereunder. Bailin, Hannigan, Nettle, Redgate, and Rogers 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.

The Commission also filed today a separate complaint against Bailin alleging that during February and March of 2000, after learning of material, nonpublic information about Ahold's intention to acquire U.S. Foodservice, he traded in the shares of U.S. Foodservice and recommended the purchase of U.S. Foodservice to six other traders. The complaint alleges that he made illegal profits of approximately $1,144,794 and the other six traders had a combined profit of $1,079,653. The complaint alleges violations of Sections 10(b) and 14(e) of the Exchange Act and Rules 10b-5 and 14e-3 thereunder. Bailin has agreed to settle the Commission's action, without admitting or denying the allegations in the complaint, by consenting to a permanent injunction, and payment of $2,224,446.51 disgorgement, $751,031.78 prejudgment interest and a $175,000 penalty.

Related Actions

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, Maryland based wholesale food distributor U.S. Foodservice, a major subsidiary of Ahold (Litigation Release No. 18797). The Commission also filed a related complaint against Peter O. Marion in connection with insider trading of U.S. Foodservice securities (Litigation Release No. 18796). On October 13, 2004, the Commission filed actions against Royal Ahold and others on October 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.

SEC Complaint in this matter (Mark A. Bailin)

SEC Complaint in this matter (Mark A. Bailin)

SEC Complaint in this matter (Kenneth H. Bowman)

SEC Complaint in this matter (Timothy Neal Daly)

SEC Complaint in this matter (Michael J. Hannigan)

SEC Complaint in this matter (Peter O. Marion)

SEC Complaint in this matter (John Nettle)

SEC Complaint in this matter (Gordon Redgate)

SEC Complaint in this matter (Bruce Robinson)

SEC Complaint in this matter (Michael Rogers)

http://www.sec.gov/litigation/litreleases/lr19034.htm