SEC Charges Two Former Supermarket Executives With Financial Fraud

FOR IMMEDIATE RELEASE
2007-184

Washington, D.C., Sept. 17, 2007 - The Securities and Exchange Commission today announced that it filed civil fraud charges against two former officers of a Syracuse-based retail and wholesale food company for repeatedly inflating reported income by improperly accounting for vendor rebates and other promotional allowances.

The Commission's complaint, filed in the United States District Court for the Northern District of New York, alleges that the former Senior Vice President and Chief Marketing Officer of the Penn Traffic Company, Leslie H. Knox, and a former Penn Traffic Vice President, Linda J. Jones, orchestrated a scheme to inflate Penn Traffic's income and other financial results by prematurely recognizing promotional allowances at Penn Traffic. Promotional allowances — also referred to as rebates, slotting fees, or vendor allowances — are fees paid from vendors in exchange for various marketing and promotional activities, such as inclusion in a supermarket's weekly circular.

The U.S. Attorney for the Northern District of New York, Glenn T. Suddaby, today separately announced that a federal grand jury impaneled within the Northern District of New York has returned an indictment against Knox and Jones on related criminal charges.

David Rosenfeld, Associate Director of the SEC's New York Regional Office, said, "These defendants engaged in a widespread scheme to falsify Penn Traffic's financial reports. The Commission continues to focus on accounting improprieties and will take strong action when officers of a public company engage in fraudulent conduct that distorts the company's financial condition."

According to the complaint, from approximately the second quarter of Penn Traffic's Fiscal Year (FY) 2001 through at least the fourth quarter of FY 2003, Penn Traffic prematurely recognized promotional allowances in advance of Penn Traffic's performance of certain key, contingent activities. Knox and Jones orchestrated, directed, and participated in this scheme in an effort to meet internal budget plans. The complaint further alleges that Knox and Jones lied to and otherwise deceived Penn Traffic accounting personnel in order to carry out their fraudulent scheme. For example, at the direction of Knox and Jones, personnel in Penn Traffic's marketing department routinely submitted false invoices and other information to Penn Traffic's accounting department so that promotional allowances were booked before they were actually earned. The complaint alleges that as a result of the willful misconduct of Knox and Jones, Penn Traffic pulled forward approximately $10 million in operating income, and these falsified financials were included in Penn Traffic's public filings.

The Commission's lawsuit seeks an order against both defendants enjoining them from violations of the antifraud, reporting, books-and-records and internal controls provisions of the federal securities laws, ordering disgorgement of all ill-gotten gains with prejudgment interest, and imposing civil monetary penalties and officer and director bars.

The Commission acknowledges the assistance of the United States Attorney's Office for the Northern District of New York and the Federal Bureau of Investigation in this matter. The Commission's investigation is continuing.

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For more information, contact:

David Rosenfeld
(212) 336-0153
Associate Regional Director
SEC's New York Regional Office

David A. Markowitz
(212) 336-0128
Assistant Regional Director
SEC's New York Regional Office

  Additional materials: Litigation Release No. 20285

http://www.sec.gov/news/press/2007/2007-184.htm