Penn Traffic execs facing criminal charges

Because of TPMtoday's hiatus, we failed to report this item when it happened a few weeks ago. As we reported several times last year, Penn Traffic, a 100+ store chain in the northeast, had been playing games with trade promo allowances.

I'll give you a moment to recover from the shock.

Now two of the company's former top executives -- Leslie Knox, the Chief Marketing Officer, and Linda Jones, a VP -- have been indicted.

Jones, 48, of Reynoldsville, Pa, and Knox, 61, of Titusville, Fla., were charged with conspiracy to commit securities and mail fraud and causing false filings to be made by Penn Traffic. If convicted, each faces a sentence of up to 20 years and fines totaling $5 million.

According to the complaint, Penn Traffic prematurely recognized promotional allowances from the second quarter of 2001 through at least the fourth quarter of 2003.

Knox and Jones directed and took part in the scheme in an effort to meet internal budget plans, the complaint said. As a result, the company pulled forward about $10 million in operating income that was included in Penn Traffic's public filings.

More trouble at Penn Traffic

I commented a week or so ago about Deloitte & Touche resigning as auditors for Penn Traffic. The company has failed to issue any financial reports for about a year and a half, and I concluded that, "You gotta wonder what's in those reports."

There's more reason to wonder now. Yesterday , the CEO quit very suddenly.

The company didn't say why Chapman decided to retire. Chapman could not be reached for comment.

Not a good sign, especially when combined with the collection of bad news packed in this paragraph:

Penn Traffic's biggest investors, the private equity firms that invested in the company, are firing salvos. The company has not released any financial statements since it reorganized in 2005. Its reasons include ongoing internal and external audits and investigations by the Justice Department and the Securities and Exchange Commission over promotional allowance practices.

Auditors quit at Penn Traffic

Deloitte & Touche has resigned as Penn Traffic's auditors over the company's refusal to release financial reports.

We've reported previously (here and here) on the company's problems, which stem apparently from misbooking trade promotion allowances: ("The Audit Committee found that the Company had engaged in certain improper practices principally relating to the premature recognition of promotional allowances ...").

The company, which operates 112 stores in the northeast US, is being investigated by both the SEC and the Justice Department, and fired a couple top executives earlier this year as a result of an internal investigation. But they have not released financials since emerging from Chapter 11 in April 2005.

You gotta wonder what's in those reports.

Penn Traffic releases internal audit report

Penn Traffic, the upstate New York retailer who, as previously mentioned here, was investigating possible misstatements in its trade promotion allowances, has released the report of its audit committee:

The Penn Traffic Company announced today that the Audit Committee of the Board of Directors has completed its internal investigation of the Company's promotional allowance practices. The Audit Committee found that the Company had engaged in certain improper practices principally relating to the premature recognition of promotional allowances ...

The findings may result in restatements of earnings from the periods affected. The SEC is also investigating.