DETROIT — Two former Kmart Corp. executives were charged with securities fraud Wednesday for allegedly inflating the earnings of the now-bankrupt discount chain by $42.3 million two years ago.
Enio Montini Jr., 51, and Joseph Hofmeister, 52, also were charged with lying to the Securities and Exchange Commission and conspiracy.
The SEC also filed an accounting fraud complaint against the two men, seeking to recoup financial gains related to the alleged actions, including a $750,000 loan that Montini received from Kmart.
An attorney for the two had no immediate comment. If convicted, Montini and Hofmeister each face up to 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.
Montini is a former senior vice president and general merchandise manager for Kmart. Hofmeister is a former divisional vice president of merchandising.
Authorities said the two 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 should not have been fully booked by Kmart in that quarter, prosecutors said. Instead, the defendants lied to Kmart's bookkeepers, who filed a report with the SEC that overstated Kmart's results and helped the company meet Wall Street's expectations.
Kmart later restated its 2001 earnings, saying only that it was to change the way it reports vendor discounts.
Both men were let go by Kmart in 2002, a year before it declared bankruptcy. At the time, the retailer said the cuts were part of an effort to streamline management. A Kmart spokesman declined comment Wednesday.
Montini went to work for Rite Aid Corp., where a spokeswoman said he resigned Wednesday as senior vice president of category management.