Pasta Maker Accused of Cooking the Books

The American Italian Pasta Company is in hot water again. Boiling hot, in fact.

The Securities and Exchange Commission filed suit against the Kansas City, Missouri, company and its senior executives today, accusing them of securities fraud and other violations of federal securities laws.

According to the suit, the company's former chief executive, Timothy S. Webster, and two others fraudulently misled investors about the growth of the company's earnings between 2002 and 2004.

We're not talking about an extra couple of tortellini or a mislabeled box or two of linguini. Investigators say the company, which makes Golden Grain and other brands of pasta, overstated its pretax income by about $59 million, or 66 percent.

"This is another case where executives at the highest levels of a public company sought to meet Wall Street's earnings expectations at all costs," said George B. Curtis, Deputy Director of the S.E.C.'s Division of Enforcement.

The company paid the S.E.C. a $7.5 million penalty and Webster agreed to pay $1 million to settle the charges.

This isn't the first time a former American Italian Pasta officer has drawn attention for alarming policies.

A former chairman, Horst W. Schroeder, continued to receive a salary two years after leaving the company in 2002, even after overseeing a 90 percent drop in the companies share price.

That's quite the golden parachute. Or perhaps in this case, golden spaghetti served al dente.

by Rafael Cohen