NEW YORK (CNN/Money) -
Warnaco Group Inc., its former auditor PricewaterhouseCoopers LLP, ex-CEO Linda Wachner and others have agreed to pay $4 million to settle charges related to the company's financial disclosures, federal regulators said Tuesday.
Under terms of the agreement, PwC will pay a $2.4 million penalty, the Securities and Exchange Commission said. Wachner will give back $1.33 million, the amount of her 1998 bonus plus prejudgment interest. Former general counsel Stanley Silverstein will return $165,772, reflecting the value of his 1998 bonus plus interest.
Former chief financial officer William Finkelstein agreed both to pay a $75,000 civil penalty and to disgorge his 1998 bonus. His total fine comes to $264,464.
In addition, the commission said Finkelstein consented to an order prohibiting him from acting as an officer or director of a public company for four years.
The SEC said Warnaco -- whose brands include Calvin Klein Jeans, Chaps Ralph Lauren sportswear and Warner's intimate apparel -- was charged with securities fraud for issuing a false and misleading press release about its financial results for the 1998 fiscal year.
| Correction
|
|
| A previous version of this story reported incorrectly that former Warnaco CEO Linda Wachner had been charged by the SEC with securities fraud. In fact, Wachner was not charged with fraud but with three separate securities violations. CNN/Money regrets the error.
|
|
|
|
On March 2, 1999, according to the SEC, Warnaco issued a press release touting "record" results for 1998. What the press release didn't say was that Warnaco had already discovered a $145 million inventory overstatement that would require the company to restate and significantly lower its financial results for the prior three years. A month later, the company filed its 1998 annual report. That filing, according to the SEC, correctly accounted for the $145 million overstatement but misled investors by characterizing it as a write-off of "startup-related costs."
In reality, according to the SEC, the overstatement resulted from poor inventory accounting and internal controls. The commission faulted Wachner, Finkelstein, and Silverstein for the misstatements, both in the initial press release and the 1998 yearly report.
The SEC responded by accusing Warnaco of committing securities fraud when it issued the press release. Regulators also charged PwC, Warnaco's auditor at the time, with aiding and abetting reporting violations in the annual report. Finkelstein was charged separately with aiding and abetting the company's fraud, the SEC said.
The SEC leveled three charges against Wachner, including an allegation that she caused the underlying reporting violation because she either knew or should have known about the mishandling of the $145 million overstatement.
Under the settlement, Warnaco must hire an independent consultant to perform a review of internal controls and policies relating to inventory, internal auditing, financial reporting and other accounting functions, the SEC said.
The company must adopt the recommendations of the independent consultant within 180 days, the agency said.
The defendants agreed to settlements without admitting or denying the allegations in the complaints, the SEC said.
Warnaco (WRNC: up $0.27 to $18.39, Research, Estimates) shares rose about 1.8 percent in afternoon trading.
|
