Byline: Rich Wilner

FRESNO, Calif.--Gottschalk's Inc. reached an agreement Friday to settle two shareholder lawsuits and said it would take a related $3.5 million charge to its previously announced second-quarter earnings.
The lawsuits grew out of a 1992 guilty plea by the retailer and its former chief financial officer to federal charges that the company took an illegal tax deduction and filed fraudulent papers with the Securities and Exchange Commission.
According to the initial federal charges, Gottschalk's and its former cfo back-dated a check under the advice of an independent consultant. This was in an attempt to win a tax deduction after the deadline for a variable employer benefit plan discount expired.
During a federal probe of the matter, the company's controller turned state's evidence and testified during the trial. Despite the testimony, the federal jury was hung 11 to 1 for acquittal. Later, both the former executive and the company pleaded guilty to lesser charges.
In April and July 1993, two shareholder lawsuits were filed. A third shareholder suit was filed in May 1993 on behalf of the company against Ernst & Young, Gottschalk's accountants. Last week's settlements end all three civil law suits.
Neither Gottschalk's nor Ernst & Young admitted any wrongdoing.
Gottschalk's said under the settlements, it will pay $3 million and the accounting firm will pay $2 million. The difference between Gottschalk's payment and the charge represents legal costs associated with the settlements, according to Alan A. Weinstein, the current cfo.
The $3.5 million charge will increase Gottschalk's loss in the second quarter ended July 30 to $3.98 million from its previously announced loss of $1.67 million. Last year, the company lost $2.43 million. Gottschalk's operates 27 department stores and 23 specialty apparel stores.
"In light of the costs of continued litigation, the board believes the proposed settlement is in the best interests of the company," said Joseph Levy, chairman and chief executive, in a statement. Levy said the company was glad to have the matter behind it and looked forward to focusing its energies on improving the bottom line and on expansion.
Both out-of-court settlements are subject to court approval.
--Fairchild News Service

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