Trustees: Leaders of Affiliated Kited $475M in Checks

by Mark Friedman  on Monday, May. 16, 2011 12:00 am  

In the months leading up to the bankruptcy two years ago of Affiliated Foods Southwest Inc. of Little Rock, its CEO and chief financial officer were protecting their bonuses by operating a check-kiting scheme that totaled nearly half a billion dollars, according to recent lawsuits filed by Affiliated's trustees in U.S. Bankruptcy Court.

Just ahead of the trial of former CFO Alexander "Lex" Martinez, the trustees have sued the 14 members of Affiliated's board of directors for allegedly ignoring several red flags that should have alerted them to crimes that occurred from late 2008 until early 2009.

"The Board ... abdicated their responsibilities and failed to use any semblance of due diligence to discover, impede, prevent or stop the scheme," M. Randy Rice, who is the trustee for Affiliated's subsidiaries, said in a complaint filed May 4. "The total amount of this check kiting scheme was $474,800,000."

Rice's lawsuit mirrors one that Affiliated's trustee, Richard Cox of Hot Springs, filed April 18. Cox is seeking at least $40 million from the board members.

Cox also named former executive vice presidents Al Miller and Ron Rivers as defendants.

Board member Kevin Doucet of Opelousas, La., told Arkansas Business last week that he couldn't comment on the allegations because of the pending litigation.

"I can make a lot of conjecture, say a lot of things, that [should have or could have been done] because I know a lot after the fact," he said. "I'm down here in south Louisiana and we had limited access."

Other board members couldn't be reached for comment.

From the trustees' lawsuits emerges a more detailed account of the downfall of Affiliated and its subsidiaries, which was once one of Arkansas' largest private companies with reported annual revenue of $730 million in the fiscal year that ended June 30, 2008, its last full year of operation before filing for bankruptcy protection in May 2009.

At the time of the bankruptcy, Affiliated had $47.6 million in assets and $101.5 million in debt, of which $62.5 million was to unsecured creditors.

The collapse of Affiliated also has led to federal criminal charges. In February 2010, John Mills, the former CEO of Affiliated, pleaded guilty to a check-kiting charge and to aiding and abetting bank fraud. Mills, 60, was sentenced to 41 months in federal prison. At the time of his sentence, federal prosecutors said the size of the check-kiting scheme was about $11.5 million and the actual loss to U.S. Bank was about $4 million.

Few details emerged from that prosecution because Mills waived indictment and went directly to court to plead guilty.

 

 

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