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A violation of corporate "blackout period" rules at The Children's Place results in the resignation of the company CEO. A second executive is barred from being an officer.
Stephen Taub, CFO.com | US
September 27, 2007
The Children's Place Retail Stores said that Ezra Dabah has resigned as Chief Executive Officer after a board committee investigation found that in two instances he did not comply with the company's internal policies related to securities trades. The probe also found irregularities in the expense reimbursement practices on the part of the Chief Creative Officer at The Children's Place brand business. The company did not identify the individual in its press statement, and did not immediately return a request from CFO.com to confirm the executive's identity.
Dabah will remain on the board of directors. Chuck Crovitz, another board member, was named interim chief executive officer until the retailer finds a permanent replacement.
According to the company, on two occasions Dabah pledged shares of the company through a margin account during a "black-out period" when prior approval of the board was required. Further, the former CEO did not properly report to the company "an immaterial increase" in his wife's ownership of the company's stock as a result of a trust distribution. The board concluded that these actions violated the company's Code of Business Conduct. However, no improper personal benefit was obtained nor did the violations have a material adverse effect on the company.
The company also said the board imposed significant sanctions on Dabah for committing the violations, including a requirement that he reimburse the company for its out-of-pocket costs in investigating the violations.
In the case of the CCO, the board concluded that the irregularities also violated the company's code of business conduct, "involving gross inattention to the pertinent requirements of the company's policies." However, the violations did not involve an intentional effort to obtain an improper personal benefit, the board added.
The CCO will be forced to step down as an officer of the company, which will require a change of position. In addition, the executive must refund amounts erroneously charged to the company, and reimburse the company's out-of-pocket costs incurred conducting the investigation into the matter. However, the retailer said that the board concluded that firing the individual was not warranted.
None of the violations have a material effect on the company's operating results, noted the press statement. But, the company said that it is instituting additional expense reimbursement procedures and additional training in the requirements of the company's code of conduct and related policies and procedures.
Meanwhile, due to Dabah's resignation and the change in executive roles, the company said it will need additional time to complete its already late annual report for the fiscal year ended February 3, 2007, as well as its overdue quarterly reports. Company officials explained that Crovitz needs more time to become familiar with the company so he can make the necessary management representations for the company's independent auditors and certification of Securities and Exchange Commission reports. The company added that it plans to file the SEC reports as soon as it is practical.
The company previously received an extension until November 14 from the Nasdaq Stock Market to become current with its financial reports. Interestingly, the company’s stock surged more than 7 percent on the news.