Accounting & Tax

Cutter & Buck Ex-Controller Pleads Out

Athena Diaz pleaded guilty to knowingly circumventing a system of internal accounting controls to help the clothing retailer improperly inflate its...
Lisa YoonAugust 26, 2004

A former controller for Seattle-based clothing retailer Cutter & Buck has pleaded guilty in federal court to a felony charge regarding the company’s reporting of inflated revenue figures, reported the Associated Press.

Athena Diaz pleaded guilty to knowingly circumventing a system of internal accounting controls.

She acknowledged that her actions helped in a scheme that allowed the company to improperly inflate its revenue figures by $5.7 million for the fiscal year ended April 30, 2000. Cutter & Buck fired Diaz in 2002 and later restated its earnings for fiscal 2000 and 2001.

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Former chief financial officer Stephen Scott Lowber pleaded guilty last August to a felony for his own role in the scheme. He admitted to being an accessory after the fact to wire fraud, said the AP.

Lowber is scheduled to be sentenced Friday, according to the Seattle Times. Diaz’s sentencing is slated for November, but the newspaper noted that this may be postponed while she cooperates with prosecutors.

She also reached an agreement with the Securities and Exchange Commission, which had charged her with a range of civil fraud allegations including aiding and abetting securities fraud, lying to accountants, and falsifying records, according to the AP. Without admitting or denying those allegations, she agreed to an order enjoining her from future violations and agreed to civil penalties to be determined later.

Lowber and a sales executive, David Andrew Hilton, had also faced civil fraud charges filed by the SEC, according to the wire service. They agreed to pay civil penalties of $50,000 and $25,000, respectively, but did not admit or deny the SEC’s allegations. Lowber was also prohibited from serving as an officer or director of a public company.

Hilton left the company in 2001 and Lowber, in August 2002. That same month, the company, which reorganized its management, announced it would restate its financial reports for its 2000 and 2001 fiscal years.

According to the U.S. Attorney’s office and the SEC, in 2000 the company faced declining sales as it neared the close of its quarter and fiscal year ending April 30. The company cut deals with distributors, shipping them $5.7 million worth of products even though the distributors did not pay for the products and had no obligation to pay until Cutter & Buck found customers for the goods, then improperly posted the $5.7 million as revenue for the quarter and year, according to the agencies.

The U.S. Attorney’s office and the SEC added that Lowber learned later that year about the arrangement. But instead of correcting the company’s financial statements, he sought to hide the deals from Cutter’s auditors and board of directors by having the distributors return about $3.8 million of the unsold products and dividing the returns among many sales divisions to disguise them, reported the AP.