SEC Sues Spiegel, Alleges Withholding of Information
The complaint, filed in U.S. District Court in Chicago, says that the retail and direct marketing giant withheld that around the start of 2002 its independent auditor notified the company "it may not be able to continue as a going concern."
Also alleged is that the auditor further provided a proposed auditor report early in 2002 saying the audit firm had "substantial doubts" regarding Spiegel's ability to continue as a going concern without it addressing "certain financial issues."
The complaint says the company chose not to make its required 10-K and 10-Q filings to conceal the "going concern" issue. Rather, it filed a series of Forms NT (notices of late filing) indicating it was not in a position to file because of several lending agreements that were not in place, the SEC said.
It is alleged that Spiegel failed to disclose its auditor's "going concern" notice in various press releases and public statements mentioning the company's financial situation.
It also consented to the appointment of an independent examiner to protect the interests of Spiegel's minority shareholders, review its financial records and give the court a written report within 120 days of the entry of the order. The report will discuss Spiegel's financial condition and identify any material accounting irregularities.
The examiner may recommend to the court interim steps to protect the minority shareholders. The court will determine what relief is appropriate.
"The civil monetary penalties, if any, remain to be seen," said C.J. Kerstetter, branch chief in the enforcement division of the SEC's Chicago office. "There will be a hearing at a later date to determine what is appropriate."
Spiegel consented to the entry of a partial final judgment and permanent injunction without admitting or denying the allegations, the SEC said. The injunction involves fraud provisions and filing requirements for publicly traded companies under securities law, he said.
"But there is no final judgment at this time," he said.
Four Form NTs were filed between April and November 2002, Kerstetter said. The first was for an annual statement, and the next three were for quarterly statements.
Statements by Spiegel executives confirm that the company decided not to make its required filings to avoid disclosing the "going concern" notice and to avoid the "disruptions" that disclosing this information would cause, the SEC said.
Kerstetter provided two quotes when asked about these statements as alleged by the SEC. He said he could not comment on the names of those quoted. The quotes he cited include:
* "Well, because again, it comes back to we could file today. If we did, all we would do is create a going concern, some upset in the market, some turmoil in the market," an officer of the company said.
* "It was very important to get this company really in the shape where you could say they have a clean opinion, an unqualified opinion. Also, to safeguard all this money, we have, so to say, put in the company ... we want, of course, to have an unqualified opinion because the vendor side is important, the image of the company is important ... " said a member of Spiegel's audit committee.
When asked about the comments, Spiegel spokeswoman Debbie Koopman said, "It's the company's policy not to comment on litigation," then added that Spiegel "is cooperating fully with the SEC's ongoing investigation."