Affiliated ex-exec earns prison time

Term 3 1/2 years for check kiting

John R. Mills
John R. Mills

— John Mills of Cabot, the former chief executive officer of Affiliated Foods Southwest, was sentenced Tuesday to 3 1/2 years in prison for participating in a check-kiting scheme that defrauded U.S. Bank of more than $4 million.

Chief U.S. District Judge Leon Holmes, who imposed the sentence at the low end of the penalty range of 41 to 51 months recommended by federal sentencing guidelines, also ordered Mills to make restitution of $3,170,834 - the amount still owed toU.S. Bank as a result of an asset-liquidation process that is still under way.

Whatever the final restitution amount, it will be owed “jointly and severally” by anyone else who is convicted of participating in the scheme, Holmes said.

In May,the now-defunct wholesale food distributor’s former chief financial officer, Alexander “Lex” Martinezof Benton, was indicted on charges of conspiring with Mills to commit bank fraud, as well as aiding and abetting bank fraud through a check kiting scheme, and aiding and abetting a false statement to a financial institution. He has pleaded innocent and is scheduled for a jury trial in May.

The indictment alleges that the 47-year-old Martinez, who was hired in February 2005 to manage Affiliated’s accounting department, conspired with the 60-year-old Mills to transfer hundreds of millions of dollars of insufficient checks among different accounts at the firm in 2008 and early 2009.

The men’s aim, the indictment alleges, was to artificially inflate account balances to allow the company to borrow against its $50 million revolving line of credit with the bank.

Mills’ attorney, Jack Lassiter of Little Rock, reminded the judge at sentencing that there has “never been any allegation by the government that Mills gained personally from this.”

Mills has said he was simply trying to keep the company afloat during the nationwide credit crunch that began in the fall of 2008, and that left Affiliated with cashflow difficulties and unable to cover loans to member grocers.

The Little Rock-based company had operated for more than half a century when it filed for bankruptcy in May. It supplied foods to hundreds of independent grocers in Arkansas, Louisiana, Mississippi, Oklahoma, Tennessee and Texas.

Affiliated ceased operations in July, causing more than 1,800 employees to lose their jobs, and more than 600 employees and members of the cooperative to lose $34 million in savings accounts with the company.

Lassiter told Holmes on Tuesday that when the company failed, Mills also suffered a substantial loss.

“He’s ready to get on with his life and accepts responsibility for what he did here,” Lassiter said.

Referring to letters that Lassiter turned over to the court from family and friends of Mills who sought leniency on his behalf, Lassiter noted, “He’s a very caring man with his family and with his friends, as you’ve read in the letters.”

Federal prosecutors, however, also presented letters from people who lost savings as a result of investments in the company or doing business with Affiliated.

Holmes said he had read all the letters.

Mills told the judge from a courtroom lectern, “Your honor, I’m very sorry to have got caught up in this and I regret that what I did was illegal, and I don’t have any excuses. I, of course, will abide by whatever sentence you think is appropriate.”

The penalty range recommended by federal sentencing guidelines was based partlyon the amount of money involved and the repetitious nature of the crime. The total amount lost through the check-kiting scheme was $4,081,115.03, before the asset liquidation process began.

The indictment alleges that between September 2008 and February 2009, Mills and Martinez transferred more than $470 million in bogus checks among accounts at the firm in at least 100 transactions.

The indictment also said that the two officers of the company created sales and income reports for the banks that didn’t reflect Affiliated’s actual sales, and supplied the false information to Affiliated’s board of directors, of which Mills was chairman, and to the bank.

Assistant U.S. Attorney Karen Whatley told the court that prosecutors “reached out” to Mills and Lassiter shortly after a criminal investigation began, and, “almost immediately,” Mills began working through Lassiter to resolve the matter.

“Mr. Mills has been nothing but cooperative during this entire process,” Whatley said, noting that he has agreed to testify against Martinez in May.

In asking the court to reduce his sentence, she said prosecutors anticipate that after the May trial, the government will file a motion citing Mills’ substantial assistance. She didn’t say what kind of reduction prosecutors might seek, but the government normally doesn’t ask for more than a 50 percent sentence reduction, which means Mills would still serve prison time.

Holmes cited the “repeated and multiple acts of dishonesty” as one of the reasons for agreeing with the guidelines’ recommendation for prison time. He said that on the other hand, Mills has no criminal history and appears to have been a law-abiding citizen until the conspiracy.

“There’s no formula, there’s no right or wrong way to come up with what’s the right punishment in this case,” Holmes said.

He said he imposed a sentence at the low end of the range partly because in Mills’ case, “I think he will never commit another crime,” and imprisonment isn’t necessary to protect the public from further crimes by him.

Holmes didn’t impose a fine, noting that Mills isn’t likely to ever be able to pay it.

The guideline range was calculated partly because of the amount of money involved. However, Holmes rejected prosecutors’ contention that Mills abused a position of trust to carry out the scheme, which would have increased the range.

While Mills held a position of trust at Affiliated, where he owed a fiduciary duty to the company, its board of directors and shareholders, his relationship with the bank was simply as a customer in a commercial transaction, Holmes noted.

Mills also earned credit for pleading guilty rather than going to trial. He is to report to prison in early January.

Front Section, Pages 1 on 10/27/2010

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