By David Runk
The Associated Press
DETROIT - Two former Kmart Corp. vice presidents were indicted Wednesday on federal charges that said their actions inflated the company's earnings for part of the year before the retailer filed for bankruptcy.
Enio A. "Tony" Montini Jr., 51, and Joseph Hofmeister, 52, were charged with securities fraud, making false statements to the U.S. Securities and Exchange Commission and conspiracy to commit those offenses.
Separately, the SEC accused Montini and Hofmeister in federal court of accounting fraud. The SEC is seeking the return of financial gains related to their alleged actions, including a $750,000 retention loan that Montini received from Kmart.
The SEC also seeks civil penalties and asks to bar them from serving as officers or directors for publicly traded companies.
Montini, of Rochester Hills, is a former senior vice president and general merchandise manager, and Hofmeister, of Lake Orion, is a former divisional vice president of merchandising.
The indictment alleges that from November 2000 to about Jan. 21, 2002, Montini and Hofmeister conspired to have the company improperly include a $42.3 million payment from American Greetings in its financial report for the second quarter of 2001.
The money was subject to repayment under certain circumstances and therefore should not have been fully booked by Kmart in that quarter, the indictment said.
According to the indictment, the defendants' false statements to Kmart's accounting and auditing divisions resulted in Kmart's filing with the SEC a quarterly report that overstated Kmart's operating results by $42.3 million for the period and helped Kmart meet Wall Street's earnings expectations for the period.
Attorney Mark A. Srere denied that the pair engaged in fraud. He said no investors were harmed by Kmart's decision to record the payment and said it had nothing to do with Kmart declaring bankruptcy.
If convicted, Montini and Hofmeister each face a maximum sentence of 10 years in prison and a $1 million fine on the securities fraud charge, and five years in prison and a $250,000 fine for the conspiracy and false statements charges.
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