Accounting & Tax

Bally Faces Criminal Investigation

Last week the company fired two finance executives and stopped making severance payments to its former CFO and CEO.
Stephen TaubFebruary 17, 2005

Bally Total Fitness announced that the U.S. Attorney for the District of Columbia has launched a criminal investigation stemming from the results of a company probe that led to the firings of several finance executives.

The company stated that it is cooperating fully.

In an unusual twist, Bally added that it has received a shareholder demand that it bring actions or seek other remedies against individuals who might have been responsible for the company’s accounting errors. Bally’s board of directors is evaluating that request.

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This is another example of how shareholders feel more empowered to pressure companies where their investments have gone sour, especially when improper conduct is involved.

Last week, Bally fired vice president and controller Ted Noncek and vice president and treasurer Geoff Scheitlin, and stopped making severance payments to its former CFO and CEO, following an investigation by the company’s audit committee.

In April 2004, CFO John Dwyer resigned amid a probe by the Securities and Exchange Commission into Bally’s timing of recognition of prepaid dues.