Ahold on tight. (Trade Talk).

Dutch retailer Royal Ahold faces still more bad news--from its southern front. The company told investors that its U.S. Foodservice subsidiary overstated earnings by at least US$500 million in the past two years. The world's third-largest supermarket chain launched an investigation of its accounting at Argentine subsidiary Disco. Initially, Disco officials issued a statement saying that the allegations of questionable accounting procedures at the company are "unfounded and completely exaggerated."

Less than two days later, Ahold announced that it had found nothing at its Argentine subsidiary that would affect earnings. Yet Disco CEO Eduardo Orteu and Chief Financial Officer Jose Sanchez, along with two other directors, resigned to "help the company's operations continue their normal course," according to a Disco statement.

Trouble at the Argentine operation has been serious. Royal Ahold wrote off Disco-related losses of $482 million and paid the chain's debts of $70 million in 2002.

Ahold is expected to seek buyers for some of its operations to avoid breaking the terms of its debt obligations and to meet payments on those debts in 2003. Before the accounting scandal broke in late February, Ahold announced said it was in talks to sell its stake in 77 stores operating under Santa Isabel brand in Chile. The total value of the Chilean company, not considering any liability, was estimated at approximately $150 million.

In Latin America, Ahold has approximately 750 stores in 10 countries.