SEC May Sue Fleming Food Vendors

Nov 06, 2003

By George Anderson

The Securities and Exchange Commission (SEC) has sent Wells Notices to at least three companies, Dean Foods, Frito-Lay and Kraft, advising them it may take legal action against
the food and beverage manufacturers for helping Fleming book revenue ahead of schedule.

The notice of possible civil litigation against the companies comes out of the SEC’s investigation into the practices of bankrupt Fleming Foods, reports the Associated Press.
Fleming filed for bankruptcy in April and has sold off most of its once vast wholesale grocery distribution business.

None of the three manufacturers are alleged to have done anything improper in their accounting of Fleming-related revenues on their own books.

Dean Foods, allegedly, sent correspondence to Fleming that allowed the wholesaler to characterize $2.7 billion in payments in 2002 as current income rather than deferred revenue.

According to the AP, Frito-Lay spokesperson Lynn Markley said the company received notice alleging an employee signed documents approving payment of $400,000 to Fleming before
it was due.

The Kraft Foods’ case allegedly involved employees also signing documents that enabled Fleming to book revenue early.

Moderator’s Comment: Will the Wells Notices sent out by the SEC have any impact on the relationship between manufacturers and distributors of their products?

From up on the soapbox, we can’t help but think that if all the accounting games played at retail were done away with, manufacturers, distributors and consumers
would be all better off.

Back in the real world, we know if Fleming had made it out of its self-created morass, this would never have been an issue. It didn’t, of course, and now
the manufacturers who tried to keep the ship from sinking are being left to explain their actions.
Anderson – Moderator

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