Gary Bell, Joseph Grendys, Anthony Holohan, and Michael Smith; Carl A. Allen; Donald Childers; John Crowder; Chris Jakubek; John King; Steve LeBarron; Patrick Penderghast; Frank Riggio; and Richard Vecchia

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19975 / January 22, 2007

Accounting and Auditing Enforcement Release No. 2544 / January 22, 2007

SEC v. Gary Bell, Joseph Grendys, Anthony Holohan, and Michael Smith, Civil Action No. 07-120 (D.D.C.) (January 18, 2007)

SEC v. Carl A. Allen, Civil Action No. 07-132 (D.D.C.) (January 18, 2007)

SEC v. Donald Childers, Civil Action No. 07-131(D.D.C.) (January 18, 2007)

SEC v. John Crowder, Civil Action No. 07-130 (D.D.C.) (January 18, 2007)

SEC v. Chris Jakubek, Civil Action No. 07-129 (D.D.C.) (January 18, 2007)

SEC v. John King, Civil Action No. 07-128 (D.D.C.) (January 18, 2007)

SEC v. Steve LeBarron, Civil Action No. 07-127 (D.D.C.) (January 18, 2007)

SEC v. Patrick Penderghast, Civil Action No. 07-126 (D.D.C.) (January 18, 2007)

SEC v. Frank Riggio, Civil Action No. 07-125 (D.D.C.) (January 18, 2007)

SEC v. Richard Vecchia, Civil Action No. 07-121 (D.D.C.) (January 18, 2007)

SEC Charges Thirteen Individuals With Aiding and Abetting Financial Fraud at U.S. Foodservice

The Securities and Exchange Commission filed enforcement actions late last week against thirteen 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, Carl Allen, Gary Bell, Donald Childers, John Crowder, Joseph Grendys, Anthony Holohan, Chris Jakubek, John King, Steve LeBarron, Patrick Penderghast, Frank Riggio, Michael Smith, and Richard Vecchia, 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%.

Allen, Childers, Crowder, Jakubek, King, LeBarron, Penderghast, Riggio, and Vecchia 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. The SEC will litigate a contested action against the remaining individuals.

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.

Related Actions

The SEC has now filed actions against 30 individuals alleging they aided and abetted the same financial fraud by signing and returning materially false audit confirmations. Litigation Release No. 19034 (January 13, 2005), Litigation Release No. 19454 (November 2, 2005), and Litigation Release No. 19721 (June 7, 2006). For additional related actions see Litigation Release 19961 (January 8, 2007), Administrative Release No. 34-53326 (February 16, 2006), Litigation Release No. 19031 (January 11, 2005), Litigation Release No. 18929 (October 13, 2004), and Litigation Release No. 18797 (July 27, 2004).

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 Complaints in this matter:
Gary Bell, Joseph Grendys, Anthony Holohan, and Michael Smith
Carl A. Allen
Donald Childers
John Crowder
Chris Jakubek
John King
Steve LeBarron
Patrick Penderghast
Frank Riggio
Richard Vecchia