Two Ex-Penn Traffic Execs Charged with Fraud by Feds

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Two Ex-Penn Traffic Execs Charged with Fraud by Feds

SYRACUSE, N.Y. -- Two fired executives of Penn Traffic Co. here have been charged with filing false financial reports for the financially troubled chain.

According to federal authorities in Syracuse, Leslie Knox of Titusville, Fla., the chain's onetime s.v.p. and chief marketing officer, and Linda Jones of Reynoldsville, Pa., a former v.p. of the company, allegedly conspired to commit securities and mail fraud, and made false Securities and Exchange Commission filings.

The SEC alleges that the executives repeatedly overstated the company's reported income by improperly accounting for vendor rebates and other promotional allowances.

Authorities believe the alleged scheme raised the company's reported operating income by $10 million, an amount that was included in Penn Traffic's public filings.

When asked by PG for comment, Penn Traffic's spokeswoman cited language from the company's Aug. 17 SEC filing, which noted that "the United States Attorney for the Northern District of New York and the Securities and Exchange Commission [have] been conducting investigations relating to our promotional allowance practices and policies. Such investigations began prior to our emergence from bankruptcy in April 2005. We have been cooperating with these investigations and have produced documents and made our employees available for interviews as requested."

The filing continued: "On June 1, 2006, we announced that the Audit Committee of the Board of Directors had completed its internal investigation of our promotional allowance practices. The Audit Committee hired independent counsel to perform the investigation. The Audit Committee found that we had engaged in certain improper practices principally relating to the premature recognition of promotional allowances, and that these practices had largely ceased by the time of our Chapter 11 filing in May 2003.

"On Feb. 3, 2006 we announced that the employment of our chief marketing officer [Knox] and our v.p., nonperishables marketing [Jones] had been terminated following an interim report to the Audit Committee on the findings of the investigation."

The company also noted that "[i]n connection with these matters, we could be subject to damage claims, fines, or penalties," but declined to speculate on what those might be.

Penn Traffic operates over 100 supermarkets in Pennsylvania, New York, Vermont, and New Hampshire under such banners as P&C Foods, Fresh Markets, Quality, and BiLo.