Wednesday, September 5, 2007
On September 5, the SECfiled a civil injunctive action charging Saks Incorporated, owner of luxury department store Saks Fifth Avenue among other retail chains, with violating the financial reporting, books-and-records, and internal control provisions of theSecurities Exchange Act of 1934. Saks has agreed to settle the case,without admitting or denying the Commission's allegations, and has agreed to an injunction barring future violations of these provisions. The Commission's complaint, filed in federal court in Manhattan, alleges that from the mid-1990s until 2003, certain employees of the company's Saks Fifth Avenue Enterprises division (SFAE) engaged in two deceptive practices in order to achieve their financial targets for the month, quarter or retail season and that these practices resulted in the company's overstatement of income by material amounts in its financial statements for its 2000, 2001, and 2002 fiscal years and for two quarters in fiscal 2001 and 1999. According to the complaint, the improper accounting by Saks resulted from aggressive financial targets the company set for SFAE, the belief by some SFAE buyers that they were expected to achieve their targets by deceptive means, if necessary, and Saks' lack of adequate internal controls. The deceptive practices consisted of the intentional over-collection of vendor allowance, or VA, and the improper deferral -- or rolling -- of markdowns of goods whose value was impaired. As a result of the vendor allowance over-collection, Saks overstated its net income for the fiscal year ended Feb. 3, 2001 by 7.0%; overstated its net income for the fiscal year ended Feb. 2, 2002 by 32.3%; overstated its net income for fiscal year ended Feb. 1, 2003 by 42.6%; and overstated its net income by 3.6% for the fiscal year ended Jan. 31, 2004. As a result of the markdown rolling, Saks overstated its net income in the second quarter of fiscal year 1999 by 86.5%; and understated its loss in the second quarter of fiscal year 2001 by 10.4%.