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…