Accounting & Tax

SEC Launches Formal Probe of OfficeMax

The investigation stems from the company's internal probe of its accounting for vendor income.
Stephen TaubJune 14, 2005

The Securities and Exchange Commission has launched a formal probe of certain accounting practices at OfficeMax Inc.

The office-products retailer announced that the investigation stems from the company’s internal probe of its accounting for vendor income. OfficeMax began that investigation in December, when the company received claims by a vendor that certain OfficeMax employees acted inappropriately in requesting promotional payments and in falsifying supporting documentation.

OfficeMax said it intends to cooperate fully with the SEC.

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This has been a tough year for the company.

In January, Brian Anderson has resigned as chief financial officer of after only two months on the job. The announcement accompanied the news that OfficeMax would delay its earnings release for the fourth quarter and fiscal 2004 amid an investigation into its accounting practices

In March, the company announced that it would restate earnings for the first three quarters of 2004 after discovering that it had overstated its cumulative net operating income by $4.3 million. It also announced that six employees were terminated for cause.

In April, the company settled a potential proxy contest with hedge fund K Capital Offshore Master Fund L.P. and Special K Capital Offshore Master Fund L.P. The activist investor agreed to withdraw its nomination of a candidate for the company’s board in exchange for OfficeMax’s willingness to appoint an additional independent director at the end of June and to give “active consideration in good faith” to a candidate or candidates proposed by K Capital for the position.

In May, OfficeMax agreed to pay $9.8 million to settle allegations by the Department of Justice regarding office supplies sold to U.S. government agencies. The Justice Department alleged that the company submitted false claims when it sold supplies manufactured in countries that do not have reciprocal trade agreements with the United States, such as China.

Also in May, OfficeMax announced that it would establish an additional legal reserve of $9.8 million, pre-tax, to its financials for the first quarter of 2005, due to new information regarding an ongoing dispute that began in 2003.

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