The Securities and Exchange Commission has settled securities fraud charges against wholesaler Fleming Cos. and three of its suppliers, Dean Foods Co., Kemps and Digital Exchange Systems.
Fleming allegedly overstated earnings in late 2001 and first-half 2002 by reporting fictitious transactions with suppliers to inflate its income. Fleming also allegedly bought excess inventory at the end of fiscal quarters to earn trade-promotion cash rebates and volume discounts that improved the appearance of its finances. The SEC also alleged that Fleming falsified same-store sales and changed how it calculates same-store sales without telling investors.
“Fleming manufactured earnings to meet Wall Street expectations. But…without suppliers providing or agreeing to false transaction documents, Fleming could not have misled investors as it did,” said SEC Associate Administrator Spencer Barasch in a statement.
Fleming and the three companies agreed to ceast and desist orders but admitted no wrongdoing.
The SEC will collect up to $400,000 in civil penalties from each supplier company and up to $75,000 from employees involved in the fraud: Dean Foods’ John Robinson; Kemps’ CEO James Green and VP-financial services Christopher Thorpe; and Digital Exchange Systems’ President Steven Schmidt and principal owner Rosario Coniglio.
Frito-Lay Director of National Accounts Bruce Jensen and Kraft Foods Region Manager John Adams also settled with the SEC over business dealings with Fleming.
The SEC won’t seek civil penalties from Lewisville, TX-based Fleming, which recently emerged from bankruptcy protection.
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