AIPC settles with D.O.J., S.E.C.

by Eric Schroeder
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KANSAS CITY — American Italian Pasta Co. on Monday settled separate agreements with the Department of Justice (D.O.J.) and Securities and Exchange Commission (S.E.C.) to resolve misconduct related to historical accounting and financial reporting that occurred under prior management. AIPC had been conducting an internal investigation of its past accounting practices since July 2005.

As part of its agreement with the D.O.J., AIPC acknowledged the wrongdoing by certain former officers and employees and agreed to pay a monetary penalty of $7.5 million. The company also said it would continue to cooperate with the D.O.J. in any further investigation.

In settling with the S.E.C., AIPC agreed to a consent injunction requiring future compliance with federal securities laws.

"Today’s announcement brings a welcome close to an unfortunate chapter in the otherwise proud history of our company," said Jack Kelly, president and chief executive officer. Mr. Kelly joined AIPC in November 2007 and was named president and c.e.o. in January. "I am extremely grateful to our board of directors for their leadership in addressing this matter in a thorough and proactive manner. I also am proud of the meaningful reforms our new senior management team and employees have implemented over the last three years to correct the past issues and restore AIPC to sound governance and financial practices."

In a related move, the S.E.C. charged Timothy S. Webster, former AIPC c.e.o.; Warren B. Schmidgall, former chief financial officer; and David E. Watson, former executive vice-president of corporate development and strategy, with engaging in a fraudulent accounting scheme to artificially increase the company’s stock price and mislead investors about the company’s earnings.

The S.E.C. also charged AIPC’s former controller Stephanie S. Ruskey in a civil action in federal court, and brought a settled administrative proceeding against Mark A. Peterson, AIPC’s former vice-president of accounting and finance.

According to the S.E.C.’s complaints, the scheme resulted in a $59 million overstatement of AIPC’s pre-tax income for the period spanning fiscal 2002 to the second of fiscal 2004.

Mr. Webster agreed to settle his charges with the S.E.C. by paying more than $1 million, but did not have to admit or deny the allegations. He also will be permanently prohibited from serving as an officer or director of a public company.

The S.E.C.’s case against Mr. Schmidgall and Mr. Watson is ongoing.

"This is another case where executives at the highest levels of a public company sought to meet Wall Street’s earnings expectations at all costs," said George B. Curtis, deputy director of the S.E.C.’s Division of Enforcement. "The commission will hold those individuals accountable for breaching the public trust and putting shareholders at risk by falsely reporting the financial condition of their companies."

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