DOW JONES NEWSWIRES

Two former executives of CSK Auto Corp. (CAO) have been charged in a 31-count indictment for an alleged five-year scheme to manipulate the company's reported earnings, the U.S. Department of Justice said Wednesday.

CSK Auto, a specialty retailer of auto parts and accessories in the Western U.S., became a subsidiary of O'Reilly Automotive Inc. (ORLY) last year. It operates 1,349 stores in 22 states.

The indictment charges Martin G. Fraser, of Glendale, Ariz., and Don W. Watson, of Gilbert, Ariz., with conspiracy, securities fraud, mail fraud, false filing with the U.S. Securities and Exchange Commission, false books and records, and false statements to its auditors.

Watson faces additional charges of falsely certifying financial reports.

A spokeswoman from CSK Auto referred questions to O'Reilly, which declined to comment. Lawyers representing Watson and Fraser weren't immediately available for comment.

In related actions, Edward William O'Brien III, a former controller of CSK, pleaded guilty on Tuesday to obstruction of justice. Another criminal investigation, unsealed Tuesday, was launched against Gary Michael Opper, former director of credits and receivables at CSK, charging him with obstruction of justice.

Last month, the SEC filed a civil enforcement action again the four men.

The Department of Justice alleged Fraser, the former president and chief operating officer, and Watson, the former chief financial officer, engaged in a scheme from 2001 to 2006 to misstate the company's income, mostly by concealing ten of millions of dollars of uncollectible receivables that it should have written off.

As a result of the scheme, CSK allegedly misstated its receivables and pretax income in its annual reports for fiscal 2002, 2003 and 2004 by about $10 million, $24 million and $19 million, respectively.

According to the indictment, CSK purchased hundreds of millions of dollars worth of auto parts every year, and its vendors gave CSK allowances, or rebates, for products CSK purchased in exchange for CSK using the allowances, generally, for marketing of the vendors' products for sale in its stores.

The vendors' allowances allegedly reduced CSK's expenses and thus increased its income. The indictment alleges that instead of writing off these uncollectible receivables, the conspirators concealed them by moving vendor allowance collections from later years to cover up the shortfalls in prior years, moving uncollectible receivable balances to subsequent years to hide them and by billing vendors to try to collect allowances CSK wasn't owed.

-By John Kell, Dow Jones Newswires, 201-938-5285, john.kell@dowjones.com