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Why the salary of the CFO in the Veg-o-matic bankruptcy case may hinge on the word of a pornographic video queen.
Marie Leone, CFO.com | US
July 27, 2007
The Ronco Corp. bankruptcy saga continues, this time with an appearance by award-winning porn star Jill Kelly. Former Ronco CEO Richard Allen is asking a U.S. Bankruptcy Court in California to examine employment disclosures and the current salary of Ronco CFO Ronald C. Stone, who was once the finance chief of Jill Kelly Productions (JKP), an adult-entertainment company.
In court documents filed this week, Allen cites a 2005 interview with Kelly, conducted by AVN.com, in which the former company president and director said she fired Stone for not doing his job, and partly blamed him for allowing the company to fall into insolvency. Kelly also discussed the constant power struggle between Stone and onetime CEO Bob Friedland, and accused the two executives of "exorbitant spending" and misappropriating funds. Kelly, who launched JKP in 2000, left the company in June 2005. By August 2006, most of its assets were sold to Penthouse Media Group for $1.8 million.
Allen, who is a Ronco shareholder and the company's second-largest unsecured creditor behind Ronco founder Ron Popeil, is owed $1.5 million by the company that hawks the Veg-o-matic kitchen tool and Pocket Fisherman collapsible rod. Popeil is owed nearly $12 million. In April Ronco filed for bankruptcy protection and, according to court documents, is in danger of liquidation if it cannot sell the company and pay off debts with the proceeds before the big holiday selling season.
In his latest court filing, Allen claims that Stone failed to inform the board or company officers that he was the finance chief of a publicly-held bankrupt corporation when he was hired as Ronco's CFO. Not disclosing that information to a new publicly-traded employer is a violation of the Securities and Exchange Commission's Rule S-K.
Allen also points out that Stone neglected to disclose that he is prohibited from practicing before the SEC as an accountant because his California certified public accountant's license has been inactive since 2006. So far, Allen says, Ronco has spent $250,000 this year on a CPA firm to help prepare and file its regulatory forms.
In addition to the disclosure issues, Allen cites Stone's $400,000 compensation package as a problem for creditors. Allen alleges that the CFO's compensation expense "is useless because [neither] Ronco nor the unsecured creditors are benefiting from having timely financials or schedules and must resort to hir[ing] an outside accounting firm." He also charges that the CFO's compensation nearly doubled since the company filed for bankruptcy in April, and wants Stone's pay rolled back to its prebankruptcy level of $170,000 until a "full investigation" can be conducted regarding his involvement in the JKP bankruptcy.
In a June court filing, Allen accuses Stone and other Ronco executives of inflating their salaries at the expense of company creditors, and of pushing through the sale of Ronco without conducting the proper due diligence, thereby setting up the company for a fall into bankruptcy.
Allen was fired last August for cause, according to court filings by Ronco. The company says he misused his travel-and-expense account and improperly booked about $150,000 worth of expenses. Allen rebuffs the charges, noting it is not uncommon for a CEO to spend that much on international and domestic travel and entertainment during the course of a year.
Ronco also asserts that while Stone's salary did increase in September 2006 to $235,000, the increase was commensurate with the additional obligations he took on following Allen's termination. In addition to the salary bump, Stone received two bonuses during 2006, notes Ronco, "for outstanding work he did in trying to revitalize [the company]." Stone received a $50,000 retention bonus after Allen was fired, and a $40,000 bonus for "his hard work and active involvement in securing financing" for Ronco.