UPDATE: John Mills Sentenced to 41 Months in Federal Prison

by Mark Friedman  on Tuesday, Oct. 26, 2010 4:41 pm  

Check Kiting to Cover Cash Flow Problems

In February, Mills pleaded guilty and confirmed to Holmes that the scheme entailed an effort to address major cash flow problems the company began experiencing in mid- to late 2008. According to Assistant U.S. Attorney Karen Whatley, beginning in September 2008, an internal accountant with Affiliated was asked to prepare a daily cash-needs report including each day's cash shortfall. Mills and Martinez would then determine the dollar amount of checks to be drawn on each subsidiary's accounts in order to cover each day's shortage.

The Affiliated accountant was instructed to contact counterparts for the subsidiaries and request they prepare checks made out to Affiliated for the determined amounts needed to cover Affiliated's shortfalls. The requested checks were processed and deposited, in full knowledge that the funds to cover them were not there, into Affiliated's account prior to 2 p.m. each day.

By doing so, Affiliated could obtain same-day credit for the funds. Each day, U.S. Bank withdrew the funds deposited into the Affiliated account and used them to reduce the outstanding balance on Affiliated's $70 million line of credit.

The scheme was discovered by U.S. Bank officials in a routine audit performed in early 2009, at which time Affiliated's line of credit was frozen. Mills, who had succeeded Jerry Davis as Affiliated's CEO in 2004, was suddenly fired in March 2009, and Affiliated was in bankruptcy by early May.

Arkansas Business reported in December 2009 that Mills had asserted his Fifth Amendment right against self-incrimination in a civil suit related to Affiliated's bankruptcy.

 

 

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