NEW YORK — It was the credit card business that paved the way for Spiegel’s credit crunch, but it was fear that led to the company’s decision to hide for more than eight months an auditor’s report warning about the...
NEW YORK — It was the credit card business that paved the way for Spiegel’s credit crunch, but it was fear that led to the company’s decision to hide for more than eight months an auditor’s report warning about the company’s ability to “continue as a going concern,” according to an new regulatory filing.
Last March Spiegel partially settled a civil lawsuit filed by the Securities and Exchange Commission, charging it with failure to make public in 2002 an outside auditor’s concerns about the Downers Grove, Ill.-based firm’s financial condition. Spiegel did not admit or deny the allegations. As part of the settlement, Stephen Crimmins, an attorney at the law firm of Pepper Hamilton and a former SEC enforcement attorney, was named examiner to review the retailer’srecords from as far back as Jan. 1, 2000. His report was filed with the SEC on Friday.
Spiegel said in a separate SEC filing that it “remains committed to cooperating fully with the SEC in its investigation of the company’s compliance with federal securities laws.” The retailer added that it is “not commenting on the investigation or the content of the independent examiner’s report.”
Among Crimmins’ findings was that Spiegel decided to delay filing its 2001 annual report because of fear of what the impact would have on its suppliers, investors and employees.
Spiegel’s last filing was a 2001 third-quarter report in November 2001, until the prospect of an SEC enforcement action led to belated filings starting in February 2003.
Crimmins also determined that Spiegel by 1999 had “embarked” on a program of “easy credit to pump up sales.” In short, Spiegel tilted its portfolio of credit card customers in favor of high-risk subprime borrowers. These were accounts that most often could not get credit elsewhere, but were counted on to use the private label credit cards to shop at Spiegel’s three venues: Spiegel, Eddie Bauer and Newport News.
In addition, FCNB, the bank that Spiegel acquired to service the credit card accounts, exacerbated Spiegel’s credit problems, according to Crimmins. While Spiegel was engaged in a “net-down” of the quality of its private label card carrying customers, FCNB temporarily eliminated a process called “back-end screening,” which would have provided a second credit check of preapproved customers to determine whether those accounts still qualified for credit. FCNB was ordered to shut down by the federal government and is liquidating.
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