Just For Feet
1. Litigation Files from SEC website (http://www.sec.gov)
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Civil Action Complaint - SEC vs Adam J Gilburne (Officer):
http://www.sec.gov/litigation/complaints/comp18139.htm
SEC In the Matter of Timothy McCool:
http://www.sec.gov/litigation/admin/33-8296.htm
2. Media Articles
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Former CEO of Apparel Firm Fila Admits to Providing False Data to Auditors –
Knight-Ridder / Tribune Business News, December 19, 2003
Former Official At Just for Feet Admits to Fraud – The Wall Street Journal, May
13, 2003
Adidas executive aggress to plead guilty to Just for Feet Fraud – Associated Press
Newswires, August 28, 2003
Two BNA Article (see below)
Tuesday, May 13, 2003
ISSN 1543-1371
News
Revenue Recognition
Shoe Executive Pleads Guilty
In Earnings-Inflation Scheme
Adam Gilburne, a former executive of Just for Feet Inc. pleaded guilty
May 12 in the U.S. District Court for the Northern District of Alabama to
conspiracy charges based on his alleged role in a scheme to inflate his
company's earnings (United States v. Gilburne, N.D.Ala., Cr. No. 03-__,
5/12/03).
In a release, Deputy Attorney General Larry Thompson, Assistant
Attorney General Michael Chertoff, and U.S. Attorney Alice Martin
announced that Gilburne could be sent to prison for up to five years and
fined $250,000 for conspiracy to commit wire fraud and securities fraud.
As part of his plea agreement, they said, Gilburne is cooperating with the
government's ongoing investigation into Just for Feet's finances. No date
has been set for Gilburne's sentencing.
Revenue Recognition
Prosecutors explained that Just for Feet was a public company based in
Shelby County, Ala. Founded in 1977, by 1999 it was the second largest
athletic shoe retailer in the United States.
For his part, Gilburne worked for Just for Feet in various capacities since
March 1994, including as an executive vice president from August 1997
until May 1999. He reported to the company's chief executive officer
prosecutors said.
From approximately December 1996 to November 1999, Gilburne and
others allegedly devised a scheme artificially to inflate Just for Feet's
financial condition through the improper recognition of income from the
concern's sole advertising agency. Beginning in about 1996, the
company's CEO would conduct meetings at the end of every quarter at
which he would describe analysts' expectations of the company's
earnings. Allegedly, at these meetings, the CEO would lay out a list
of"goods"--items that produced or added income--and "bads"--items that
reduced income. Employees allegedly were directed to increase the
"goods" and decrease the "bads" in order to meet his earnings
expectations and those of Wall Street.
'Rogers Rebate.'
According to the charges, Just for Feet's CEO would meet with the
president of Rogers Advertising just before the end of Just for Feet's
fiscal year and agree that Rogers would pay the agency commissions it
would earn for the upcoming year, minus a monthly retainer, back to Just
for Feet--the so-called "Rogers Rebate."
Allegedly, Gilburne, the CEO, and others knew that the Rogers rebate
represented income earned by and paid to Just for Feet in the following
fiscal year. Nonetheless, they caused Just for Feet to record the rebate
as a receivable due in the current fiscal year. Prosecutors said that when
insufficient rebates would not support the previously booked receivable,
Just for Feet authorized Rogers Advertising to submit bogus bills to Just
for Feet to generate income for Rogers Advertising to pay down the
receivable on Just for Feet's books.
Allegedly, as part of the conspiracy, the CEO instructed Gilburne and
others, if asked about the Rogers rebate, to say the rebate was based on
services already performed during the current year.
In the release, Martin said, "Corporate fraud is a matter of grave concern
for investors. We will continue to focus manpower, and work with the
Department of Justice Fraud Section to bring these important cases to
court."
Tuesday, September 2, 2003
ISSN 1543-1371
News
Crime
Adidas Sales Director to Plead Guilty
In Connection With Alleged Scheme at Retailer
Timothy McCool, director of apparel sales for Adidas America, has
agreed to plead guilty in the U.S. District Court for the Northern District of
Alabama to charges that he conspired to submit false statements to the
auditors of Just For Feet Inc., a now-bankrupt retailer, and to falsify JFF's
books and records, the government said Aug. 28 (United States v.
McCool, N.D. Ala., N.A., 8/28/03).
Justice Department and Federal Bureau of Investigation officials said
McCool in 1999 signed an "audit confirmation letter" provided to him by
an executive vice president of JFF, knowing it contained false
information. The letter, which was submitted to JFF's auditors,
misrepresented that Adidas owed JFF $2.2 million. According to the
indictment, the amount actually owed was about $40,000.
McCool, as national director of sales for Adidas at the time, was
responsible for setting sales and marketing strategies at retail
establishments that carried Adidas products, such as JFF.
Marc Blackman, attorney for McCool, refused to comment through a
spokeswoman.
Adidas, which still employs McCool, said in a statement that McCool
"made an imprudent mistake many years ago when he signed a
document without fully understanding how the information was going to
be used." The company also stressed that "at no point has the [Justice
Department] or any other investigating body ever questioned Adidas'
own accounting or internal controls."
McCool's agreement comes amid an ongoing investigation into JFF's
finances, U.S. Attorney Alice Martin, and FBI and Justice officials said.
Before it filed for bankruptcy in 1999, JFF had grown into the secondlargest athletic shoe retailer in the United States.
McCool will enter a formal plea before the court at an as yet unscheduled
date, according to the government. He faces a maximum of five years in
jail and a $250,000 fine. He is cooperating with the continuing
investigation, according to prosecutors.
Said Martin, "While there may be pressure to 'assist' a big retail client,
executives must recognize that signing a false audit confirmation letter
and sending it to the independent auditor puts them squarely into a
conspiracy to commit corporate fraud."
In May, Adam Gilburne, former JFF president, pleaded guilty to
conspiracy charges based on his alleged role in the scheme to inflate the
company's earnings.