Friedman’s Jewelers CEO Bradley Stinn - GUILTY - Accounting Fraud Scheme! Comments by White Collar Crime Speaker Chuck Gallagher
Pump up those sales! We’ve got to make the quarter! How often are those command heard and how tempting is it to make the wrong choices in order to please the investing public and Wall Street?
Following six weeks of trial - Bradley Stinn, age 47, - former CEO of Freidman’s, Inc. and Crescent Jewelers, found himself being convicted of securities fraud, mail fraud and conspiracy. Likewise, in addition to Stinn’s conviction, the former CFO, Victor Suglia and form Controller, John Mauro have entered guilty pleas into what was a massive accounting fraud.
So what happened? According to the US Attorney’s news release:
During the period of the conspiracy, Friedman’s was the third largest specialty retailer of fine jewelry in the United States, operating 686 stores in 20 states. The government’s proof at trial established that Friedman’s encouraged its sales personnel to increase sales by inducing customers to finance their jewelry purchases using the company’s installment credit program, which was used to finance more than half of Friedman’s $400 million in annual net sales. A major aspect of the fraud scheme was concealing that Friedman’s was increasingly unable to collect money owed by customers who bought jewelry on credit. Friedman’s collection problems stemmed from the company’s widespread failure to follow its own credit-granting guidelines – guidelines that STINN falsely told investors were strictly enforced. In fact, STINN and other senior executives encouraged routine violations of the guidelines to increase the company’s reported sales.
To cover up the collection problems, STINN caused Friedman’s quarterly reported credit statistics to understate the delinquency of its credit portfolio, and caused Friedman’s to report false earnings numbers. In some cases, the false earnings reported by Friedman’s met or exceeded the public estimates of professional stock analysts, and resulted in the artificial inflation of Friedman’s stock price.
Between November 2003 and May 2004, Friedman’s stock price lost more than half its value. On November 11, 2003, the stock closed at $11.99 per share. On May 6, 2004, the New York Stock Exchange halted trading in Friedman’s stock, at which time the stock was trading at $4.97 per share. On January 14, 2005, Friedman’s filed for Chapter 11 bankruptcy.
Stinn’s lawyer, David Shapiro, confirmed the verdict. “We’re obviously very disappointed,” Shapiro said. “We think it was against the weight of the evidence. We think that there were some significant appeal issues in the case, and we are going to pursue an appeal.”
Was the pressure of financial performance so great that you would jeopardize your freedom and life to hit the numbers?
Every choice has a consequence. As a white collar crime and business ethics speaker, I speak from first hand experience about the truth about consequences. Reality is - no one escapes the consequences of their choices. While Stinn may have looked good hitting the numbers for a time and avoided the consequences - he did not avoid the consequences all together. Prison is no fun and Stinn is facing 25 years for his conviction. Likely he will serve time and that will prove to be a dramatic change from his prior activities. You do reap what you sow.
If anyone reading has any background on Stinn - feel free to comment as I study the behaviors and backgrounds of those convicted of white collar crime.
White Collar Crime Speaker - Chuck Gallagher - signing off…
March 30, 2008 at 3:29 pm
Chuck,
All I have to say is that you have no clue what you are talking about about Brad Stinn. Yes it is true that the CFO, Victor Suglia, pleaded guilty to accounting fraud. The truth is that Mr. Suglia pointed to Mr. Stinn in order to reduce his own sentence.
Mr. Stinn’s only fault has been to hire a crook CFO - nothing else.
March 30, 2008 at 8:46 pm
Mr. Stinn was convicted. The buck stops with the CEO and he or she has a responsibility to know what is taking place in the organization. If, in fact, Stinn is innocent it will come out in his appeal. Otherwise, he was judged by a jury of his peers. Every choice has a consequence and failure to know the internal controls of your company in the capacity of CEO can be criminal and obviously was found to be so here.
March 31, 2008 at 5:27 am
how much time do you think Brad will get?
March 31, 2008 at 5:45 am
Hard to guess based on some of the sentences that have been handed down over the past several years with Enron, etc. My guess is 60 months - but it is only a GUESS!
March 31, 2008 at 10:02 am
In thinking about Oshi’s comment another thought came to mind.
As a Senior VP of Sales and Marketing for a public company, I sign quarterly a statement regarding our compliance with Sarbanes-Oxley especially as it relates to our internal controls. The higher up the food chain one is the more they are expected to make sure the company is, in fact, doing what it is expected to do.
Stinn may very well be a good man, but his conviction would be appropriate as CEO since his company seemed to be out of control when it came to compliance with what they stated were controls related to their financing policy.
March 31, 2008 at 7:39 pm
BRADLEY STINN IS N O T G U I L T Y.
March 31, 2008 at 7:56 pm
Brad Stinn is a man of integrity, a great father to his children and husband to his wife. My thoughts and prayers are with his family.
March 31, 2008 at 8:33 pm
Mark - mine are too. Having been to federal prison, I know first hand what he is going through and know from my family what they are facing. Often I counsel families what to expect when facing incarceration, hopefully the Stinn family will grow strong through the experience ahead.
April 1, 2008 at 10:14 am
Chuck, you say that bucks stops at the CEO. What about the board? What about their auditors?
Also he was not judged by jury of his peers! Jury asked to see his income statement. What is that has to do with anything? To this jury 6 figures income is a big deal. The truth is that Stinn did not sell a single share! So his income was in 6 figure - name me a CEO of a public company whose income is not 6 figures.
The trial should have never been in NY. The company was based in GA not NY.
April 1, 2008 at 11:28 am
Oshi…you are right in that the board is ultimately responsible. I was not at the trial, so I cannot speak from direct experience here, but most of the time the CEO is accountable for implementing the Board’s directives. Notice - rarely does the board get indicted. Being a CEO isn’t easy, they must do what the Board directs, comply with the law, and meet the shareholder’s expectations. Tough and worth every dollar…
April 1, 2008 at 5:06 pm
The jury did not ask for Mr. Stinn’s income statement. Many financial documents were requested, but not specifically the CEO’s paperwork. Everybody’s financial benefits regarding the fraud that were material in the case were on the same documents.
April 4, 2008 at 10:56 am
Are you kidding me? These people are offering sympathy for this man? His fraudulant behavior threw the already troubled company into a talespin. Then enter the next set of crooks. These people made six figures on the hard work of peons like me. I made $10.50 an hour…I worked 14-16 hour days(most times with no break). Forgive me if I feel no sympathy for him. He lied. Bottom line. The evidence proved this. I hope his sentence is harsh and I hope more execs end up before a judge. I worked for this company for years and the higher ups(always thinking of their own gain) sold all of us out…with NO warning. Theft is theft…white collar is just a “more pleasant” was of putting it.
April 4, 2008 at 1:47 pm
I was not “at the top” but worked with those people, trust me Brad knew every detail of every stores P&l and directed all charge offs etc. Nothing happened without not only his knowledge but his direction.
April 5, 2008 at 1:27 pm
Stinn - Former Harvard - Cleveland St. Ignatius Graduate
April 5, 2008 at 8:49 pm
Another blog posting you might want to comment on:
http://chuckgallagher.wordpress.com/2008/04/05/bradley-stinn-saint-or-sinner-the-ceos-role-in-freidmans-jewelers-collaspe/
April 7, 2008 at 4:11 pm
Oshi, and others,
As a juror in Mr. Stinn’s case I have to say that you really have no clue about what you’re talking about.
1) You claim he wasn’t judged by a jury of his peers. Pardon me, dear, but who exactly would YOU consider to be Mr. Stinn’s peers?
2) We did NOT ask for Mr. Stinn’s income statements at any time during the deliberations. After rendering our verdicts the judge instructed us to rule on how much Mr. Stinn should relinquish (not restitution, by the way) as a direct result of his crimes. We determined that his bonuses and tax gross ups on stock options were fair game - which is where the $1,019,000 came from.
3) Jurisdiction was a matter for the jury to decide - not you. Fraud invovles the distribution of false information to investors. While SEC filings were prepared in GA and CA, they were largely distributed by investment firms in NY. Since the distribution of the information resulted in the crime, NY was the appropriate jurisdiction.
Any other bold assertions you’d like to make without direct knowledge of the situation?
April 7, 2008 at 5:20 pm
I think it is important to point out that the government’s press release was, in fact, exceptionally overblown in its assertion about what was at the crux of the convictions. The government asserted that a combination of misdeeds including 1) scooping, 2) mishandling of the so-called x-files (accounts that were mis-categorized as “current” for months after they were delinquent because of a computer programming flaw), 3) manipulation of the company’s Allowance for Doubtful Accounts, 4) general mismanagement of Friedman’s credit approval policies, and 5) the unauthorized tax gross up that Mr. Stinn executed for himself on a sizable stock option.
In the end, only one of these lines of argument “stuck” - scooping.
I guess a win is a win…but verbally “spiking the ball after the touchdown” by overblowing the case was bad form on the part of the government prosecutors.
April 9, 2008 at 9:23 pm
One more ex employee here. As I was in accounting, I know factually that Stinn knew of the practices of loose credit and lack of writeoffs and directed, through and with Suglia to not write off on time (as was the stated policy) or even write off at all. While he did have a high salary, he and Suglia’s incentives were partially based on stock price. What better way to increase your stock price than to show a great P&L? Some of you say he’s some saint and didn’t have a clue are lost in the woods. You weren’t in the meetings or on the conference calls I was and you didn’t hear his (and Suglia’s) directives. Also, for those of you talking about SOX, all of this happened before that act really took effect, so there wasn’t as much government scrutinity as their is now. Finally, E&Y was as much at fault as anyone else. It doesn’t take a genius auditor to see that true write off was much higher than the allowance for write off (as reported on the P&L). The E&Y auditors were either totally incompetent or in bed with Stinn and Suglia. I met the managing partner a few times. I would opt for the latter. But to be open here, I don’t have any ill will toward the company or to any of the executives. I got out of there after the first emergence from Ch 11, so I stuck through the hard times. But I’m just calling it as it is. They’re no better than any of Enron’s cronies.
April 14, 2008 at 1:04 pm
I agree that E&Y were asleep at the wheel.
However, SOX was in effect during the period of time that was covered in the criminal charges against Mr. Stinn. SOX was actually passed in July, 2002. It was interesting that the passage of SOX came at almost the exact same time as Mr. Stinn’s request for Mr. Suglia to move from Savannah to Oakland so that they could work side-by-side. Could it be that Mr. Stinn wanted to avoid any sort of paper trail that would get him in trouble under SOX? While it didn’t weigh in on our verdict, the ironic timing wasn’t lost on the members of the jury.
April 24, 2008 at 1:43 am
As a former management consultant to Crescent, I can assure you that Brad Stinn was intimately involved in all of the details of the business, which he scrutinized daily. As a manager of a business, he didn’t have a clu as to how to deal with all facets of the business. His attention was riveted on the numbers that were manipulated. Some of us lost substantial amounts of money as the result of his misrepresenting the financial condition of the company.