A spokesman for U.S. Attorney Jane Duke said Friday that John Mills, 59, is free on his own recognizance until his sentencing in six to eight weeks.
The actual sentence will be determined by Chief U.S. District Judge J. Leon Holmes and based in part on a report from the court’s probation division. Since there is no parole for federal crimes, the sentence Mills is given is the one he will serve.
In its simplest form, check kiting is an activity carried out by individuals strapped for cash who float hot checks between two checking accounts.
A check written on one bank is deposited in a second bank creating an apparent positive balance which allows the withdrawal of enough money to deposit into the first bank before the first check bounces.
In a press release Thursday, Duke said Mills kited checks on a grand scale.
At the plea hearing before Judge Holmes, Mills admitted that Affiliated Foods began to experience major cash-flow problems in mid to late 2008, Duke said. To alleviate the problem, Mills and Alexander Martinez, the company’s chief financial officer, devised a scheme in which two subsidiaries, Convenience Store Supply Inc. and Supermarket Investors Inc., would issue checks to cover shortfalls at Affiliated Foods.
Every day, U.S. Bank withdrew the funds deposited into Affiliated Food’s account and used those funds to reduce the outstanding balance on the company’s line of credit, Duke said. By using the kited checks, written almost daily, to artificially reduce its outstanding line-of-credit balance, Affiliated Foods had sufficient funds available on its line of credit to cover the checks clearing each day.
The scheme was ongoing from Sept. 29, 2008 until Feb. 27, 2009 when it was discovered by U.S. Bank during a routine audit.
The company’s line of credit was frozen, further escalating the cash-flow problem. The company filed bankruptcy in May 2009 and went out of business two months later.
Affiliated Foods was headquartered in Little Rock and provided products to hundreds of independent grocery stores in Arkansas, Louisiana, Mississippi, Oklahoma, Tennessee and Texas.
“In the wake of our country’s economic downturn, we have seen all manner of corporate fraud come to light. Such corporate fraud hampers vital recovery efforts by displacing workers, destroying investor trust, and curtailing consumer confidence,” Duke said in the Thursday press release.
“The Department of Justice will aggressively investigate and prosecute Ponzi schemes, bank fraud, check kiting, and other similar types of financial ‘shell games’ specifically designed to lull banks, investors, and employees into having a false sense of security,” she said.
The investigation that led to Mills’ guilty plea to bank fraud was conducted by the Federal Bureau of Investigation. It is being prosecuted by Assistant U.S. Attorney Karen Whatley.
