A federal judge on Wednesday sentenced the former chief executive officer of Friedman’s Inc. and its Crescent Jewelers affiliate to a 12-year prison term for securities fraud, mail fraud and conspiracy.

This story first appeared in the April 30, 2009 issue of WWD. Subscribe Today.

According to the U.S. Attorney’s office, Bradley Stinn led a multiyear conspiracy that exaggerated the national jewelry chain’s financial performance and hid from investors its “serious problems” collecting on hundreds of millions of dollars in jewelry it sold on credit.

Stinn and his co-conspirators lied to the company’s auditors and investment public and falsified financial statements to cover it up as part of the fraud, the U.S. Attorney’s office said.

Stinn’s indictment, handed down in March 2007, alleged the company, at the behest of the ceo and other executives, encouraged customers to finance purchases in order to increase the firm’s sales volume. Credit purchases accounted for more than half of the jeweler’s $400 million in annual sales, authorities said. Though Friedman’s had problems collecting on the financed sales, Stinn and other company officials understated the delinquencies by falsifying data to keep the issue from investors, the indictment alleged.

Friedman’s filed for Chapter 11 bankruptcy protection in January 2005 and was later liquidated. It had been the third largest specialty fine jeweler in the U.S. with 686 stores in 20 states.

The New York Stock Exchange delisted the company’s stock in May 2004 after it fell in trading to $4.97 from $11.99.

The investigation also resulted in guilty pleas from the company’s former chief financial officer and controller.

A jury convicted Stinn, 49, on the charges after a six-week trial in U.S. District Court in Brooklyn in March 2008. He had faced a maximum 30-year sentence.

Stinn’s defense attorney, David Shapiro, characterized the sentencing as too harsh and out of line and confirmed to WWD the conviction will be appealed.

At sentencing, the court found Stinn’s fraud caused Friedman’s shareholders and others to lose more than $20 million, the U.S. Attorney’s office said.

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