Accounting & Tax

Former Friedman’s CEO Indicted

If convicted of the most serious charges, including conspiracy to commit securities fraud, Bradley Stinn faces a maximum sentence of 30 years in pr...
Stephen TaubMarch 9, 2007

Bradley Stinn, former chief executive officer of jewelry retailer Friedman’s and its affiliate, Crescent Jewelers, was indicted in U.S. District Court in Brooklyn for his participation in the company’s accounting fraud.

If convicted of the most serious charge — conspiracy to commit securities fraud, mail fraud, and wire fraud — Stinn faces a maximum sentence of 30 years in prison.

According to the indictment, Stinn and others “repeatedly lied to shareholders and the investing public” about the company’s financial performance. The disclosure of the government’s investigation, in late 2003, prompted the resignation of Stinn and chief financial officer Victor Suglia.

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In November of that year, Friedman’s announced that it would restate its results for fiscal years 2000 through 2002 and for the first three quarters of 2003. The company filed for Chapter 11 protection in January 2005.

“Brad intends to defend himself at the trial. He’s innocent of these charges,” David Shapiro, Stinn’s lawyer, told Reuters.

Suglia and another former finance executive pleaded guilty to criminal charges earlier this year.

The government’s investigation also resulted in non-prosecution agreements with Friedman’s and Crescent under which they agreed to forfeit $3 million, cooperate fully with the investigation, and adopt significant corporate reforms to prevent recurrence of the fraud.

According to the indictment, Friedman’s found it increasingly difficult to collect money owed by customers who bought jewelry on credit, and “Stinn and others falsified the company’s accounting data to conceal these problems from the investing public.”

Although the former CEO told investors that Friedman’s strictly enforced its credit-granting guidelines, “in fact, Stinn and other senior executives encouraged routine violations of the guidelines to increase the company’s reported sales,” the indictment charged.

Specifically, the indictment charged that Stinn caused Friedman’s quarterly reported credit statistics to understate the delinquency of its credit portfolio, which gave investors the false impression that the company’s credit accounts were more collectible than they actually were. Stinn also allegedly caused Friedman’s to report false earnings numbers, which did not fully take into account the impact of the collection problems.

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