Grand Jury Indicts Former Kmart Execs

Discussion
Feb 27, 2003
George Anderson

By George Anderson


A federal grand jury charged two former Kmart executives with securities fraud, making false statements and conspiracy for allegedly lying to company auditors about a $42 million payment from American Greetings.


Enio Montini Jr. and Josef Hofmeister are accused of booking a $42 million payment from American Greetings as earnings in a single quarter instead of prorating the payment over the five-year period of the contract. This action allowed Kmart to “fraudulently overstate its quarterly earnings by six cents per share — 32-percent higher than they should have been”, according to the Detroit Free Press.


Mr. Montini and Hofmeister were fired by Kmart in May 2002.


Mark Srere, a lawyer for the two men, said neither received any personal gain from the company’s decision to book the American Greetings’ funds and “The recording of the $42 million had absolutely nothing to do with Kmart declaring bankruptcy.”


Moderator’s Comment: What are your thoughts on the
indictment against the former Kmart executives? What are the implications for
the wider retail industry if this case goes forward?


Should Kmart have booked the $42 million in a single quarter?


No.


Should the grand jury have indicted the two men for security
fraud?


No. If they do, the government will need grand juries
working around the clock. Kmart is not alone, by a long shot, in this practice.
[George
Anderson – Moderator
]

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