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Two former executives of American Italian Pasta are

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scion Member Level  Friday, 10/16/09 10:29:37 AM
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Two former executives of American Italian Pasta are sentenced to prison

The Kansas City Star

Two former top executives of American Italian Pasta Co. were sentenced to prison Thursday for their roles in overstating the company's earnings and deceiving investors.

Timothy S. Webster, 47, the company's former president and chief executive, was sentenced to 18 months by U.S. District Judge Greg Kays. Warren B. Schmidgall, 59, American Italian's former chief financial officer, was sentenced to 13 months in a separate appearance before Kays.

Each pleaded guilty a month ago to one count of conspiracy to commit wire fraud. The company at the time also agreed to pay a fine of $7.5 million as a penalty.

The U.S. attorney at the time, John Wood, called the case the largest corporate fraud prosecution in the history of the Western District of Missouri.

Prosecutors accused the two men of inflating American Italian's earnings and deceiving investors from May 2002 to December 2004.

Specifically, they charged that the pair took steps to ensure that quarterly earnings matched Wall Street predictions by manipulating the company's books. Among other things, the two were accused of treating operating expenses as capital investments, overstating inventory, booking dubious receivables and engaging in transactions designed to create the appearance of earnings.

American Italian, the largest producer of dry pasta in the country, was a fast-growing market leader until its financial results came under scrutiny. American Italian, now under new management, was forced to restate its financial reports, reducing its income between fiscal 2001 and fiscal 2004 by $52.5 million.

In June, Schmidgall and Horst Schroeder, the company's former chairman, reached settlements with the Securities and Exchange Commission. Schmidgall agreed to disgorge more than $38,000 and to pay a penalty of $100,000. Schroeder agreed to pay a $50,000 penalty.

Two other American Italian executives -- David Watson, its former executive vice president, and Stephanie Ruskey, its former controller -- agreed to pay respective fines of $1 million and $25,000 to the SEC. A third official, former vice president of accounting and finance Mark Peterson, was ordered to cease and desist from committing reporting and record-keeping violations.

Webster, of Mission Hills, made a brief statement Thursday morning, apologizing for his conduct. In a brief phone interview after the sentencing, Perry Brandt, one of his attorneys, called it "a sad day for Mr. Webster and his family."

"He was very remorseful, very contrite and very sorry about the whole thing," Brandt said.

In a statement, U.S. Attorney Matt Whitworth said: "Accounting fraud by corporate executives deprives investors of transparent markets and imperils our nation's economic strength. Executives are under enormous pressure to hit their earnings targets. But law enforcement will continue to protect the investing public by holding corporate officers responsible when they falsify financial statements."

Posted on Thu, Oct. 15, 2009 11:10 PM


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