NEW YORK — Linda J. Wachner is forking over $1 million of her $6 million 1998 bonus money as part of a settlement with the Securities and Exchange Commission in connection with her former role as chief executive officer of The Warnaco Group.
The Warnaco Group was charged with securities fraud in connection with alleged misstatements in a press release issued on March 2, 1999, regarding its financial results relating to a $145 million inventory overstatement. In addition, actions were filed by the SEC against Wachner, former general counsel Stanley Silverstein and former chief financial officer William Finkelstein, as well as against Warnaco’s former auditor, PricewaterhouseCoopers, in connection with the company’s disclosures in an SEC document.
The document was Warnaco’s 1998 annual report, or Form 10-K, which was filed one week after the issuance of the press release.
All the parties have settled their cases with the SEC. The settlements do not include any admission or denial of any of the SEC allegations or findings. The company itself was not assessed a penalty.
Wachner agreed to give up $1.3 million of her 1998 bonus, a figure that includes prejudgment interest. There is no penalty involved in her case, nor was there any charge of fraud or intentional conduct or wrongdoing. Wachner is also free to serve as a director or officer of a public company. According to the SEC, the commission noted that, at the time of its filing, “she approved and signed the 1998 annual report.”
PricewaterhouseCoopers had the steepest financial settlement, agreeing to pay a $2.4 million penalty.
Finkelstein’s settlement involved giving back $189,464 in bonus money for 1998 and prejudgment interest. The former cfo also agreed to pay a $75,000 civil penalty and is barred from acting as a director or officer of a public firm for four years. Finkelstein serves as chief operating officer of American Enterprises Inc., a privately held manufacturer of children’s sleepwear, a position in which he can continue under the terms of the settlement. He could not be reached for comment.
Silverstein, meanwhile, is giving up $165,772, representing a portion of his 1998 bonus plus prejudgment interest. Silverstein could not be reached for comment. According to a Warnaco spokesman, Silverstein is still with the company as senior vice president and chief administrative officer. Part of his new responsibilities include head of corporate development, with a focus on acquisitions, new licensing and other strategic opportunities. Unlike Finkelstein, Silverstein is not barred from serving as an officer in a public company.
The government probe first came to light in July 2002 when Warnaco, in its annual report, stated it had been informed that the SEC was recommending an enforcement action against the firm.
On Sept. 3, 2002, Warnaco filed a Wells Submission, a document submitted by a potential defendant or respondent in an SEC query that is initially read by SEC staff, which can then decide whether or not to proceed to an official action.
Warnaco said Tuesday, through a company spokesman, that its officials “are pleased that we have reached the settlement with the SEC, and this last chapter is now closed.”
Warnaco has kept mostly mum about the specifics of the SEC investigation. According to the SEC in Tuesday’s statement, the company had reported “record” results in 1998, but failed to tell shareholders in its press release that the apparel giant discovered a $145 million inventory overstatement. The overstatement, the SEC said, required the company to restate its results for the prior three years, when in fact, Warnaco allegedly “characterized the inventory restatement as the write-off of deferred start-up costs under a new accounting pronouncement.”
The SEC also said the firm filed a misleading Form 10-K for 1998 a week later that allegedly failed to disclose the true reason for the restatement. In effect, the numbers were buttoned up, but the description of the inventory write-down was incorrect.
As for Wachner, her spokesman, Howard Rubenstein of Rubenstein Associates, said, “She is pleased with the outcome.”
In another development, Warnaco agreed to hire an independent counsel to review internal control regarding its inventory systems and implement the consultant’s recommendations within 180 days.