NEW YORK — The Securities and Exchange Commission has launched a formal investigation into Saks Inc. over what could be a series of concerns, ranging from improper collection of markdown allowances to related accounting and disclosure issues.
The SEC notified Saks Inc. last Thursday that it issued a formal order of a private investigation. Saks Inc. revealed the development on Monday and said it is fully cooperating with the SEC. An SEC spokesman said the commission does not discuss current investigations.
On March 3, Saks Inc. announced it was conducting an internal probe of “alleged improper collections of vendor allowances” in one merchandise division of its Saks Fifth Avenue chain, and that it had informed the SEC about the investigation.
Saks Inc., which is based in Birmingham, Ala., also said then that its investigation, being conducted by an audit committee of the board, would be completed by the end of this month. Now the company expects the investigation to be completed in April.
Saks Inc. is said to be shopping its department store group. The SEC situation would be a distraction and a possible roadblock to any sale.
In addition to operating the 57-unit Saks Fifth Avenue chain, Saks Inc. operates 52 Off 5th stores and the 238-unit Saks department store group, which includes the Parisian, Proffitt’s, McRae’s, Younkers, Herberger’s, Carson Pirie Scott, Bergner’s and Boston Store nameplates. There are also 38 Club Libby Lu specialty stores owned by Saks Inc.
The retailer also said Monday that, in addition to the alleged improper collections of vendor markdown allowances, the audit committee’s probe relates to “the adequacy of an initial internal investigation in 2002 into this matter, and accounting and disclosure issues that have arisen in the course of the audit committee’s investigation.”
As reported, Saks has agreed to pay back, or otherwise compensate, certain resources a total of $21.5 million due to the improper collection of markdown allowances. The impropriety reportedly occurred in the bridge area of the SFA division. Saks Inc. would not confirm that.
Onward Kashiyama USA is believed to be among the vendors being repaid. The vendor, which supplied Kors merchandise to Saks, has sued the retailer for $9,275,643 for “substantial deductions and credits which were not allowed under the terms of the agreement,” according to legal papers.
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