N.J. Company's Fraud Boils Over
Specialties Inc.'s stock chart in its
final two years shows a steep run-up in
its share price price in the months preceding
its delisting and the company's bankruptcy
for cooking company books vary according to
taste but generally include the following
ingredients: greed, theft, power, and accounting
trickery. In the case of a New Jersey company,
those elements congealed around a tasty ingredient
found in many a kitchen cookbook: cheese.
a scheme that mirrored the executive suite
shenanigans of the granddaddy of white-collar
crimesEnrontop executives of cheese
manufacturer Suprema Specialties Inc. booked
fraudulent profits and inflated earnings,
which in turn kept Wall Street investors happy
and banks willing to loan money. Most of the
Paterson-based company's sales and profits
were in fact fictitious. And in some cases,
low-end imitation cheese was re-labeled as
all-natural, then sold at a considerable premium
to boost the company's bottom line.
Suprema's bubble burst in 2001, when a company
insider troubled by the massive fraud alerted
the U.S. Attorney's Office, which in turn
enlisted our Newark field office's white-collar
crime squad. The insider, a former controller
for the company, revealed to our special agents
the extent of the scheme that cost banks about
$80 million in losses and led Wall Street
to halt trading on the company's stock. Unable
to raise any more money, the company declared
bankruptcy in 2002, leaving investors, including
a Louisiana teacher's pension fund, holding
millions of worthless shares.
Agent Michael Cahill, one of four agents on
the case, described a circular scheme in which
some the company's accounts who were in on
the fraud would accept fake invoices to make
it appear Suprema's business was flush. The
accomplices in turn sent Suprema fictitious
invoices, which Suprema promptly paid. Drawing
on that money the accomplices sent checks
back to Suprema to cover Suprema's fictitious
the while, Suprema used the fake invoices
to borrow more and more money from the banks.
With each round-trip, the invoices grew incrementally,
making business look robustand a safe
bet for the banks that extended more than
$140 million to Suprema.
like a check float," Agent Cahill said.
"It kept spiraling upward because they
had to cover costs."
to bust. Riding high on strong (and fictitious)
numbers$1.2 billion in sales between
1996 and 2001and the bullish press generated
in part by top executives extolling Suprema's
sound business model, the company put out
a secondary stock offering in 2001 and raised
another $41 million from investors. Top executives,
including the chief executive officer and
chief financial officer, cashed in stock at
its peak, making millions. Six months later
the company was bankrupt.
dealing with a lot of people who got cheated
by these guys," Agent Cahill said.
searched computers at Suprema, as well as
its suppliers and distributors, and carted
away more than 1,000 boxes of records dating
back to 1991. Half a dozen accomplices accepted
pleas and laid out the architecture of the
long-running scheme that ultimately led back
to the corporate suite and indictments in
2002 of the CEO and CFO.
big cheese. In April, following an eight-week
trial, Suprema's founder and former CEO Mark
Cocchiola and former CFO Steven Venechanos
were each convicted on more than 35 separate
white collar crime is one of our top priorities.
At the end of the last fiscal year, FBI field
offices were pursuing 490 corporate fraud
cases, 19 of which involve losses to investors
that individually exceed $1 billion, according
to our most recent Financial Crimes Report
to the Public.
Financial Crimes Report to the Public
Specialties Convictions Press Release