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Judge Drops Charges Vs. Ex-Kmart Execs

November 7, 2003

DETROIT (AP) _ A federal judge, acting at the request of prosecutors, dismissed charges Friday against two former Kmart executives accused of engaging in a conspiracy to inflate the discount retailer’s earnings.

``In light of the evidence and testimony to date, the government believes that it is more likely than not that the evidence will not sustain a conviction,″ the prosecutors said in their motion asking U.S. District Judge Paul Borman to dismiss the charges.

Borman approved the request.

Enio A. ``Tony″ Montini Jr. and Joseph Hofmeister were accused of securities fraud, making false statements to the Securities and Exchange Commission and conspiracy.

Defense lawyers said the men committed no crimes.

In a statement on behalf of Hofmeister, his lawyers proclaimed his innocence. Hofmeister, 53, of Lake Orion, worked for Kmart as a divisional vice president of merchandising.

``He finally has been vindicated,″ the statement read. ``Today the government acknowledges that ... there is no case. We fully support the government’s decision to do the right thing here by dismissing all charges.″

Jonathan Graham, a lawyer for Montini, said his client was delighted that the government decided to abandon its prosecution. Montini, 51, of Rochester Hills, was a senior vice president and general merchandise manager of Kmart’s drug store division.

``Mr. Montini, an innocent man whose life has been devastated by this case, looks forward to rebuilding his life,″ Graham said in a statement.

Testimony began Tuesday and the jury heard from two prosecution witnesses.

Defense lawyers said testimony from key government witness Susan Pifer, a CPA and former Kmart finance officer, didn’t hold up under cross examination.

The government said Montini and Hofmeister helped Kmart meet Wall Street’s earnings expectations during the second quarter of 2001 _ boosting its earnings by six cents a share _ by leading the company to improperly record a $42.3 million payment from vendor American Greetings Inc.

But lawyers for the men said they were following Kmart’s accounting procedures and the technical accounting issues were out of their hands. They also said that a quarterly report filed with the SEC that is at issue in the case was not false.

Kmart Corp. closed nearly 600 stores and shed 57,000 employees after filing for bankruptcy protection in January 2002. It emerged from bankruptcy in May as Kmart Holding Corp. Company officials say it will return to profitability next year.

The case represented the first criminal charges from the federal probe into Kmart’s finances. Borman granted a defense motion last month to exclude references to the bankruptcy at the trial.

While the charges against Montini and Hofmeister were dropped, U.S. Attorney Jeffrey Collins said the investigation into Kmart’s bankruptcy that led to the charges is ongoing.

Kmart spokesman spokesman Jack Ferry said Kmart Holding ``continues to fully cooperate with federal investigations.″

``It would be inappropriate for the company to comment on the outcome of the trial of former executives of the predecessor company,″ Ferry said.

Montini and Hofmeister had faced a maximum sentence of 10 years in prison and a $1 million fine on the securities fraud charge. The conspiracy and false statements charges carry maximum penalties of five years in prison and a $250,000 fine.

The SEC also had filed a civil accounting fraud action against Montini and Hofmeister, seeking to bar them from serving as officers or directors for publicly traded companies.

``We’re going to have to evaluate the evidence and review the matter and decide what we are going to do,″ said Thomas C. Newkirk, the agency’s associate director of enforcement. ``We have a different standard of proof.″


On the Net:

Kmart Holding Corp., http://www.kmart.com

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