Affiliated Foods Insiders Facing More Scrutiny

by Mark Friedman  on Monday, Dec. 14, 2009 12:00 am  

As bankruptcy trustees sort out the remains of Affiliated Foods Southwest Inc. of Little Rock, creditors are fighting legal battles with former insiders.

Last month, U.S. Bank accused Vince Cannata of Houma, La., a member of Affiliated's board of directors and owner of Cannata's Supermarket Inc., of allowing his store to cash in more than $500,000 worth of Affiliated investment certificates - just eight months before Affiliated filed for bankruptcy. The accusation came in U.S. Bank's Nov. 2 filing in Affiliated's bankruptcy case.

"He then allowed his corporation to purchase, on credit, inventory of $156,000 while surely knowing as a member of the Executive Committee of the Board that the bankruptcy filing was imminent," U.S. Bank said in its filing.

Cannata's is trying to avoid paying the $156,000 and asked the Bankruptcy Court to offset that amount because it claimed that Affiliated owes it more than $250,000.

U.S. Bank, which is owed about $25 million by Affiliated, has a lien on Affiliated's accounts receivables and has objected to Cannata's request for an offset.

A hearing in Bankruptcy Court is pending.

It would be up to the trustees, Richard Cox of Hot Springs and M. Randy Rice of Little Rock, to decide if they were going to try to recover the more than $500,000 that Cannata's Supermarket received. Neither trustee nor Cannata could be reached for comment.

Cannata isn't the only officer at Affiliated facing scrutiny over the collapse of the wholesale food distribution cooperative, which had been one of Arkansas' largest private companies.

 

Taking the Fifth

Last month, former Affiliated Foods President John Mills of Cabot took the move - unusual in a civil case - of invoking "his privilege against self-incrimination pursuant to the Fifth Amendment of the United States Constitution" in response to allegations of selling unregistered securities to members.

Two investors filed suit alleging that Mills and Affiliated Secretary Charles Moore of Howard County sold unregistered securities and breached their fiduciary duty. The investors said they lost $750,000 and are seeking class-action status for their lawsuit, filed in Pulaski County Circuit Court.

The attorney for the plaintiffs estimates that more than 100 investors have lost more than $30 million from Affiliated, which filed for Chapter 11 bankruptcy reorganization in May and then had the case converted to liquidation Chapter 7 in August. Affiliated listed debts of $101.5 million and assets of $47.6 million. 

 

 

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