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Subject:  K-Mart & Bristol Meyers former execs charged Date:  8/23/2005  1:04 PM
Author:  zoningfool Number:  526 of 532

SEC CHARGES KMART'S FORMER CEO AND CFO WITH FINANCIAL FRAUD

FOR IMMEDIATE RELEASE

2005-119

Washington, D.C., Aug. 23, 2005 - The Securities and Exchange Commission today filed charges against two former top Kmart executives for misleading investors about Kmart's financial condition in the months preceding the company's bankruptcy. According to the Commission's complaint, former Chief Executive Officer Charles C. Conaway and former Chief Financial Officer John T. McDonald are responsible for materially false and misleading disclosure about the company's liquidity and related matters in the Management's Discussion and Analysis (MD&A) section of Kmart's Form 10-Q for the third quarter and nine months ended October 31, 2001, and in an earnings conference call with analysts and investors.

Linda Chatman Thomsen, Director of the Division of Enforcement, said, "The SEC has repeatedly emphasized the important role MD&A disclosure is intended to play in giving shareholders the ability to examine a corporation 'through the eyes of management.' Kmart senior management deprived its shareholders of that opportunity."

Peter H. Bresnan, an Associate Director in the Division of Enforcement, stated, "Investors are entitled to both accurate financial data and an accurate description of the story behind the numbers. Kmart's senior management failed to honestly inform investors that Kmart faced a liquidity crisis in the third quarter of 2001, how the company's own ill-advised action had caused the problem and what steps management took to respond to it."

The Commission alleges that, in the MD&A section, Conaway and McDonald failed to disclose the reasons for a massive inventory overbuy in the summer of 2001 and the impact it had on the company's liquidity. For example, the MD&A disclosure attributed increases in inventory to "seasonal inventory fluctuations and actions taken to improve our overall in-stock position." The Commission alleges that this disclosure was materially misleading because, in reality, a significant portion of the inventory buildup was caused by a Kmart officer's reckless and unilateral purchase of $850 million of excess inventory. According to the complaint, the defendants dealt with Kmart's liquidity problems by slowing down payments owed vendors, thereby withholding $570 million from them by the end of the third quarter. According to the complaint, Conaway and McDonald lied about why vendors were not being paid on time and misrepresented the impact that Kmart's liquidity problems had on the company's relationship with its vendors, many of whom stopped shipping product to Kmart during the fall of 2001. Kmart filed for bankruptcy on Jan. 22, 2002.

The Commission's complaint, which was filed in the United States District Court for the Eastern District of Michigan, charges Conaway and McDonald with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and aiding and abetting violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 13a-13, and 12b-20 thereunder by Kmart, and seeks as relief permanent injunctions, disgorgement with prejudgment interest, civil penalties and officer and director bars.

The Commission acknowledges the assistance of the United States Attorney's Office for the Eastern District of Michigan and the Federal Bureau of Investigation.


http://www.sec.gov/news/press/2005-119.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19344 / August 23, 2005

Accounting and Auditing Enforcement

Release No. 2295 / August 23, 2005

Securities and Exchange Commission v. Charles C. Conaway and John T. McDonald, Jr., 05 Civ. 40263 (P. Gadola, J.) (E.D. Michigan, filed August 23, 2005)

SEC Charges Kmart's Former CEO and CFO with Financial Fraud

The Securities and Exchange Commission today filed charges against two former top Kmart executives for misleading investors about Kmart's financial condition in the months preceding the company's bankruptcy. According to the Commission's complaint, former Chief Executive Officer Charles C. Conaway and former Chief Financial Officer John T. McDonald are responsible for material misrepresentations and omissions about the company's liquidity and related matters in the Management's Discussion and Analysis ("MD&A") section of Kmart's Form 10-Q for the third quarter and nine months ended October 31, 2001, and in an earnings conference call with analysts and investors.

The Commission alleges that, in the MD&A section, Conaway and McDonald failed to disclose the reasons for a massive inventory overbuy in the summer of 2001 and the impact it had on the company's liquidity. For example, the MD&A disclosure attributed increases in inventory to "seasonal inventory fluctuations and actions taken to improve our overall in-stock position." The Commission alleges that this disclosure was materially misleading because, in reality, a significant portion of the inventory buildup was caused by a Kmart officer's reckless and unilateral purchase of $850 million of excess inventory. According to the complaint, the defendants dealt with Kmart's liquidity problems by slowing down payments owed vendors, thereby effectively borrowing $570 million from them by the end of the third quarter. According to the complaint, Conaway and McDonald lied about why vendors were not being paid on time and misrepresented the impact that Kmart's liquidity problems had on the company's relationship with its vendors, many of whom stopped shipping product to Kmart during the fall of 2001. Kmart filed for bankruptcy on January 22, 2002.

The Commission's complaint, which was filed in the United States District Court for the Eastern District of Michigan, charges Conaway and McDonald with violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder, and aiding and abetting violations of Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5, 13a-13, and 12b-20 thereunder by Kmart, and seeks as relief permanent injunctions, disgorgement with prejudgment interest, civil penalties and officer and director bars.

The Commission acknowledges the assistance of the United States Attorney's Office for the Eastern District of Michigan and the Federal Bureau of Investigation.

The SEC's Kmart investigation is continuing.

http://www.sec.gov/litigation/litreleases/lr19344.htm

COMMISSION CHARGES TWO FORMER BRISTOL-MYERS OFFICERS FOR FRAUDULENT EARNINGS MANAGEMENT SCHEME

FOR IMMEDIATE RELEASE

2005-118

Washington, D.C., Aug. 22, 2005 - The Securities and Exchange Commission today filed civil fraud charges against two former officers of Bristol-Myers Squibb Company for orchestrating a fraudulent earnings management scheme that deceived investors about the true performance, profitability and growth trends of the company and its U.S. medicines business.

The Commission's charges against Frederick S. Schiff, formerly Chief Financial Officer (CFO) at Bristol-Myers, and Richard J. Lane, formerly President of the company's Worldwide Medicine Group, were filed in the United States District Court for the District of New Jersey.

According to the Commission's complaint, Bristol-Myers, at Schiff and Lane's direction, sold excessive amounts of its pharmaceutical products to wholesalers ahead of demand and improperly recognized revenue from $1.5 billion of such sales to its two largest wholesalers. Moreover, when Bristol-Myers earnings results still fell short of its internal targets and the consensus estimate of Wall Street securities analysts, the company used "cookie jar" reserves at Schiff's direction to further inflate its earnings, the Commission alleges.

The Commission's complaint seeks financial penalties against Schiff and Lane and return of their ill-gotten gains. The complaint also seeks to bar them from serving as officers or directors of publicly traded companies.

Linda Chatman Thomsen, Director of the SEC's Division of Enforcement, said, "The desire to meet earnings targets cannot override corporate officers' responsibilities to public shareholders to assure that the company's public pronouncements reflect financial reality."

Merr