The Securities and Exchange Commission’s 18-month investigation into Zale Corp.’s accounting of its advertising expenses has been closed without a recommendation for further legal action.
Zale’s receipt of the so-called Wells Letter doesn’t take it off the hook entirely. According to the SEC, such a communiqué “must in no way be construed” as a form of exoneration, as a decision not to pursue enforcement action could be made for any number of reasons.
In confirming the end of the Zale probe, the agency said it had settled a civil action with Rebecca Lynn Higgins, Zale’s former vice president of marketing. The complaint alleged that between 2004 and 2009, Higgins caused the company to record certain television advertising costs as prepaid advertising when those costs should have been expensed in the periods incurred. The SEC said due to “Higgins’ actions, Zale’s publicly reported prepaid advertising and advertising expenses for these periods were materially misstated.” Higgins agreed to pay a $25,000 civil penalty, according to the SEC.
The complaint and settlement were filed on Thursday in a federal district court in Dallas.
In September 2009, Zale said certain financial statements for its 2007 and 2008 fiscal years and interim periods should not be relied upon, and it would restate its financial statements for fiscal 2008 and 2009 and related interim periods. It also said a “significant portion” of prepaid advertising costs “should have been recorded as expense.” Zale noted that an investigation had been initiated by the SEC’s office in Fort Worth, Tex., when it posted its annual report, or Form 10-K, with the SEC on Oct. 29, 2009.
In November 2009, the company and four former officers — Neal Goldberg, Rodney Carter, Mary Burton and Cynthia Gordon — were named in two separate lawsuits, later consolidated, filed in a federal district court in Dallas alleging violations of federal securities laws. On April 7, the court issued an order dismissing the action.
Goldberg, 51, the former chief executive officer of Zale, passed away March 17.
According to a Zale spokeswoman, still pending is a shareholder derivative lawsuit filed in December 2009 in a state court in Dallas. The lawsuit was put on hold pending resolution of the federal action, the Zale spokeswoman said Friday.
Based in Dallas, Zale operates more than 1,870 jewelry stores throughout North America.