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    Two Former Kmart VPs Indicted on Fraud

    DETROIT - The federal probe of bankrupt Kmart Corp. has resulted in its first criminal indictments -- fraud charges against two former vice presidents accused of inflating the retailer's earnings.

    DETROIT - The federal probe of bankrupt Kmart Corp. has resulted in its first criminal indictments -- fraud charges against two former vice presidents accused of inflating the retailer's earnings.

    Enio A. "Tony" Montini Jr., 50, and Joseph Hofmeister, 52, were charged with securities fraud, making false statements to the Securities and Exchange Commission and conspiracy to commit those offenses, prosecutors said Wednesday.

    Montini is a former senior VP and general merchandise manager, and Hofmeister is a former divisional VP of merchandising. A statement issued on their behalf called the charges "wrong and unjust."

    The indictment alleges that from November 2000 to about Jan. 21, 2002, Montini and Hofmeister conspired to have the company improperly include a $42.3 million payment from one of its vendors, American Greetings Corp., in its financial report for the second quarter of 2001.

    The money was actually subject to repayment under certain circumstances and 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 the company filing an SEC 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.

    In a statement for Montini and Hofmeister, attorney Mark A. Srere denied that the pair engaged in fraud. Srere said no investors were harmed by Kmart's decision to record the payment and said it had nothing to do with Kmart's bankruptcy.

    If convicted, Montini and Hofmeister each face a maximum sentence of 10 years in prison and a $1 million fine on the securities fraud charge. The conspiracy and false statements charges carry maximum penalties of five years in prison and a $250,000 fine. A date for their arraignment was pending.

    On Tuesday, Kmart said it has found evidence supporting possible legal action against former chief executive Charles Conaway for what it described as failure to perform his duties, including allegedly permitting executives to receive nearly $24 million in retention loans and other payments.

    Conaway denied the claims.

    Also Wednesday, the SEC filed a civil accounting fraud action against Montini and Hofmeister. The SEC is seeking the return of financial gains related to their alleged actions, including a $750,000 retention loan that Montini received from Kmart. The SEC action also seeks civil penalties and asks to bar them from serving as officers or directors for publicly traded companies.

    Kmart dismissed both men in May when the company cut a dozen jobs at its 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.

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