The agreement with Penn Traffic comes a month after it settled fraud charges with the U.S. Securities and Exchange Commission that it carried on multimillion-dollar accounting schemes that falsely inflated corporate profits over several quarters between 2001 and 2003.
As with the SEC agreement, the company settled without admitting or denying guilt. Prosecutors said the company had taken responsibility and had reformed its internal controls, policies and procedures.
"We continue to make good progress on resolving legacy issues that pre-dated the company's emergence from bankruptcy in 2005, allowing us to focus even more energy on serving customers and improving the business," Senior Vice President and General Counsel Daniel Mahoney said.
Penn Traffic operates or supplies more than 210 supermarkets in New York, Pennsylvania, Vermont and New Hampshire. Its stores do business under the P&C, Quality and BiLo names.
Federal authorities accused Penn Traffic of purposely inflating its operating income and other financial results by prematurely including "slotting fees," rebates and vendor allowances. Such fees are paid to Penn Traffic from companies that supply Penn Traffic with grocery products.
Penn Traffic also was under investigation for alleged fraudulent financial reports for its Penny Curtiss commercial baking factory that operated in Salina until it closed down in January.
While the company will not be prosecuted, federal authorities continue to pursue their case against two former top executives with Penn Traffic. Leslie Knox, Penn Traffic's former senior vice president and chief marketing officer, and Linda Jones, Penn Traffic's former vice president of non-perishable merchandising, were charged in 2007 with falsifying documents by nearly $10 million over three years to make it appear that the company was meeting its fiscal goals.
In 2005, Michael Lawler, the former director of operations at Penny Curtiss, admitted in federal court that he defrauded Penn Traffic's stockholders by overstating earnings by $11 million over three years.
The company has struggled financially for the past decade. It emerged from a nearly two-year bankruptcy court reorganization in April 2005 with new management but has continued to lose money. It also went through bankruptcy reorganization in 1999.
Penn Traffic has lost nearly $16 million through the first half of its current fiscal year.
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