- The Washington Times - Thursday, February 27, 2003

DETROIT (AP) Two former Kmart Corp. vice presidents were indicted yesterday on federal charges that claim their actions inflated the company's earnings for part of the year before the retailer filed for bankruptcy.
Enio A. "Tony" Montini Jr., 51, and Joseph Hofmeister, 52, were charged with securities fraud, making false statements to the U.S. Securities and Exchange Commission and conspiracy to commit those offenses.
Separately, the SEC accused Mr. Montini and Mr. Hofmeister in federal court of accounting fraud. The SEC is seeking the return of financial gains related to their reputed actions, including a $750,000 retention loan that Mr. Montini received from Kmart.
The SEC also seeks civil penalties and asks to bar them from serving as officers or directors for publicly traded companies.
Mr. Montini, of Rochester Hills, Mich., is a former senior vice president and general merchandise manager, and Mr. Hofmeister, of Lake Orion, Mich., is a former divisional vice president of merchandising.
The indictment claims that from November 2000 to about Jan. 21, 2002, Mr. Montini and Mr. Hofmeister conspired to have the company improperly include a $42.3 million payment from one of its vendors, American Greetings, in its financial report for the second quarter of 2001.
The money was actually subject to repayment under certain circumstances and therefore should not have been fully booked by Kmart in that quarter, the indictment said.
According to the indictment, the defendants' false statements to Kmart's accounting and auditing divisions resulted in Kmart's filing with the SEC a quarterly report that overstated Kmart's operating results by $42.3 million for the period and helped Kmart meet Wall Street's earnings expectations for the period.
Attorney Mark A. Srere denied that the pair engaged in fraud. He said no investors were harmed by Kmart's decision to record the payment and said it had nothing to do with Kmart declaring bankruptcy.
"Both Mr. Hofmeister and Mr. Montini have spotless records in over 30 years of business experience each," Mr. Srere said. "Both Mr. Hofmeister and Mr. Montini received no personal gain from Kmart's decision to record as revenue the $42 million."
Kmart filed for bankruptcy on Jan. 22, 2002, and plans to exit Chapter 11 protection by April 30.
If convicted, Mr. Montini and Mr. Hofmeister each face a maximum sentence of 10 years in prison and a $1 million fine on the securities fraud charge, and five years in prison and a $250,000 fine for the conspiracy and false statements charges.
Both men were let go by Kmart in May 2002 when the company cut a dozen jobs at its Troy, Mich., headquarters. At the time, the retailer said the cuts were part of an effort to streamline the retailer's senior-level management team and reduce its geographic divisions from five to two.
"It's not appropriate for us to comment on this," Kmart spokesman Jack Ferry said yesterday.

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