Trustees: Leaders of Affiliated Kited $475M in Checks

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

Lex Martinez, however, is scheduled for trial May 23 in U.S. District Court in Little Rock. He is charged with check-kiting, conspiracy to commit bank fraud and aiding and abetting a false statement for giving U.S. Bank phony financial statements.

Martinez's attorney, Chuck Banks of Little Rock, said last week that he hadn't seen the lawsuits from the trustees. But he said he would vigorously defend Martinez on each of the three counts, "including any allegation that he orchestrated a check-kiting [scheme]," Banks said.

Company Rise

Affiliated Foods Southwest, which was founded in 1948, operated as a wholesale food distributor for more than 400 stores in Arkansas and surrounding states. Affiliated also owned about 45 stores, including Harvest Foods and Piggly Wiggly locations.

Jerry Davis, who had been the CEO of Affiliated for 17 years, died on Nov. 30, 2004, and Mills, who was its president and chief administrative officer, was promoted to CEO.

Within three months of Mills' promotion, Martinez was hired to manage the company's accounting department. He was promoted to CFO in June 2005.

In those early years under Mills and Martinez, Affiliated and its subsidiaries seemed to be profitable - barely.

For the fiscal year that ended June 2006, Affiliated reported net income of $4.2 million on sales of $639.3 million. A year later, Affiliated reported a profit of $3.1 million on sales of $629.4 million. But those numbers were misleading, Rice said.

‘Falsely Positive Picture'

Rice said in his court filings that receivables weren't reported correctly on the financial statements of Affiliated's subsidiaries.

"It was important that the notes receivable balance accurately reflect how much cash would ultimately be received, or in accounting terms, ‘realized,' in respect to these notes," Rice wrote. "To the extent that these current notes receivable balances were overstated, or, in accounting terms, ‘not presented at realizable value,' in the financial statements, they gave lenders a falsely positive picture of the companies' financial position."

If the board or the managers had insisted on appropriate accounting practices, Rice said, the net income for the subsidiaries would have been lower. The lawsuit doesn't say how much lower the income would have been.



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