SUPERVALU OWNS 25% OF FIRM IN COUPON FRAUD CASE

[Update: Saturday, February 16th, 2008 -- The Wall Street Journal has published a front-page story today on much of the subject covered here.

Exclusive to the readers of milwaukeeworld

By Michael Horne

Eden Prairie, Minnesota-based Supervalu, a publicly traded $44 billion firm that is the nation's third largest grocery chain, is a one-quarter owner of International Outsourcing Services, Inc., milwaukeeworld has learned today.
The 25 per cent ownership stake by Supervalu puts an interesting twist in the decision Monday, May 21st, 2007, of U. S. attorney Steven M. Biskupic to drop charges against IOS for its involvement in a $250 million coupon fraud scheme that cost Wisconsin manufacturers millions of dollars.
The agreement removes IOS from the wire fraud charges that remain pending against 11 individuals charged in March in connection with the scheme, including two who own 75% of the firm and requires "installing a new management team and removing the indicted individuals from their roles with the company," and "placing all putative distributions to shareholders, including any potential proceeds available for shareholders if the company were ever sold, in escrow pending resolution of the criminal cases."
This provision was put in place to assure that Bruce Furr, 70, who owns about 51 per cent of IOS, and Thomas "Chris" Balsiger, 53, who owns 49 per cent in his partnership with Supervalu, do not reap the rewards of their conduct, if found guilty.
But it does appear to leave Supervalu shareholders holding the bag. They are not entitled to receive any dividends from the business, nor any of the proceeds should the firm be sold. Wall Street usually discounts a stock on that kind of news.
Watertown, Wisconsin native Richard G. Frohling, the Deputy Criminal Chief of the U.S. attorney's office in Milwaukee, explained the department's intention in an interview with Milwaukeeworld.
"We are trying to lock up any money so that the wrongdoers can't get the money," he said. "Our goal is to obtain restitution." At the same time, the agreement will keep IOS "going in the marketplace. We try not to be in the business of putting people out of work." [IOS employs 6,000 people worldwide.]
He also clarified the ownership of the firm. According to the March indictment, "IOS was owned by two corporations, Indiana Data, Inc. ... and NAFTA, Ltd. [which was] owned by a publicly-traded company and Thomas C. Balsiger." At Milwaukeeworld's request, Frohling identified Supervalu as the publicly-traded company named in the indictment. According to Frohling, "the ownership hasn't changed. It is still 75% owned by Furr and Balsiger."
Balsiger and Supervalu founded NAFTA back in 1980, so it presumably had been profitable to Supervalu's bottom line. It is unknown whether it will remain so now that the profit pipeline has been shut down.

SUPERVALU RESPONSE
[Friday, May 25th 2007 -- The management of Supervalu issued this statement today at milwaukeeworld's request. -- Ed.]

SUPERVALU statement:

"SUPERVALU has a non-controlling, 25.5% ownership interest in IOS, and has cooperated fully with this investigation. While the allegations levied against IOS in the original complaint were very concerning, the dismissal of federal charges against the company indicate the progress of the investigation.

That said, as a matter of policy, SUPERVALU will withhold further comment on this issue until the investigation is complete and there is final resolution.


Haley Meyer

Corporate Communications

SUPERVALU

INDICTED PAIR RESIGN POSTS

Today, Wednesday, May 23rd, 2007, IOS announced the anticipated resignation of Bruce Furr as Chairman and of Chris Balsiger as CEO of IOS. Fellow indictee William L. Babler also resigned as CFO. Furr and Balsiger were replaced by Greg Rayburn, and the new CFO is Sean Gumbs of FTI Palladium Partners of New York. As noted above, Balsiger and Furr retain 75 per cent ownership of the firm.
Rayburn previously served as the Chief Reconstruction Officer of WorldCom, the world's largest bankruptcy. In 2005, he was named CEO of Muzak, Inc. He also is the managing partner of FTI, which is a turnaround management firm, as is Gumbs.
IOS, which calls itself the "Laborgistics" company, has its headquarters in Bloomington, Indiana, home to Furr, and its North American operations headquarters in El Paso, where Balsiger resides. Its 6,000 employees work in "automotive, banking, consumer package goods, government, manufacturing, retail, service, technology, transportation and utilities." It has a heavy presence in Mexico, where it is the Halliburton of the maquiladora industry, as well as in France, Germany and Slovakia.
Clients range from Ben and Jerry's to Lockheed Martin, from Milwaukee's Rockwell Automation to Milwaukee's A. O. Smith, from Hewlett-Packard to the House of Blues, and from the Commonwealth of Kentucky to the Ville de Lille.