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SEC charges Al Dunlap
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May 15, 2001: 3:11 p.m. ET
Agency says ex-Sunbeam CEO, other officers, accountant engaged in fraud
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NEW YORK (CNNfn) - The U.S. Securities and Exchange Commission is suing five former officers of Sunbeam Corp. and its former accountant, charging them with fraud the commission said resulted in billions of dollars of investment losses.
The SEC did not charge the company itself, and instead instituted settled administrative proceedings against Sunbeam and its former general counsel. The agency said that the company and the former general counsel agreed to an order prohibiting future violations of SEC rules without admitting to any wrongdoing in this case.
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Al Dunlap
Ex-Sunbeam CEO charged with fraud by SEC. (Source: CNNfn file) | |
Sunbeam filed for bankruptcy court protection in February. Company officials issued a statement saying that the settlement with the SEC is an important milestone for the company.
"Since June 1998, when our new management team arrived at Sunbeam, we have been looking forward to resolving these issues, all of which involve periods during which the company was operated by Al Dunlap and his team," said a statement from Jerry Levin, Sunbeam's CEO. "As no issues between the Company and the SEC involve periods after June 1998, this allows us to finally put the SEC investigation behind us and concentrate on our business opportunities."
Those charged include Sunbeam's flamboyant former CEO, Al Dunlap, known as "Chainsaw Al," who was fired from the company's top job in June 1998. He arrived at the company with the nickname and a reputation as a turnaround specialist who made deep cuts. He lived up to the reputation by cutting more than 12,000 positions in less than two years.
The agency's statement did not specify what monetary penalties it seeks against those charged in the civil complaint. In addition to potential fines, the agency is seeking to bar the five from ever serving as an officer of a public company again, and that the Arthur Andersen partner who served as the firm's outside auditor not be allowed to practice any longer.
Officers, accountants proclaim innocence
The attorney for Dunlap and Russell Kersh, Sunbeam's former principal financial officer who was also named in the complaint, issued a statement himself as well as statements from the two men criticizing the SEC action and vowing a vigorous defense.
"The accusations made against me by the SEC are totally false," said Dunlap's statement. "Under my stewardship at Sunbeam, we installed a system of proper corporate governance and had full disclosure of all company information to our outside professionals including our auditors, Arthur Andersen. Any public statements or public disclosure made by the company was fully reviewed by our outside professionals including our outside auditors prior to release of the information."
Both Dunlap's and Kersh's statements said they had bought stock in Sunbeam and never sold a share during their time at the company.
Also cited by the SEC civil complaint were: Robert Gluck, its former controller; and Donald R. Uzzi and Lee B. Griffith, whom the complaint identified as former vice presidents of the company. Keith Olin, Griffith's attorney, said that his client was the company's head of sales and had nothing to do with preparing or approving the financial statements that are the subject of the complaint.
"The SEC has egregiously overreached by naming Mr. Griffith in this action," Olin said.
Uzzi's lawyer also pointed out that his client was not an accountant and proclaimed his innocence.
"His 13 months at Sunbeam were difficult and trying on both professional and personal levels," said Brian Rosner, Uzzi's attorney. "He sought to do what was best for the stockholders of sunbeam during a turbulent time in the company's history."
Gluck's lawyer also proclaimed his client's innocence, and said he looked forward to his day in court.
The SEC also cited Phillip Harlow, the Arthur Andersen partner who served as Sunbeam's outside accountant. A statement from the accounting firm said that it stands behind Harlow, who continues to serve as the managing partner of its Fort Lauderdale, Fla., office.
"His record and reputation has been excellent during the 30 years he has served as an independent auditor with the firm," said the firm's statement. "The SEC allegations reflect professional disagreements about the application of sophisticated accounting standards. They are not indicative of fraud."
Harlow has transferred his audit responsibilities to other partners to concentrate on his legal defense, according to the firm.
Sunbeam restated financial results five months after Dunlap's dismissal. Even before the restatement and dismissal, the company's forecasts had been lowered, causing a plunge in the value of the stock.
SEC says officials pumped up results to sell company
According to the complaint, the defendants, led by Dunlap and Kersh, employed a laundry list of fraudulent techniques to falsely give the picture of a successful turnaround, falsely raising results, in an attempt to sell the company at an inflated price.
Those techniques, according to the complaint, included recording revenue on contingent sales, accelerating sales from later periods into the present quarter and using improper bill and hold transactions. It is also charged with using "cookie jar" accounting, a practice in which the SEC said Kersh and Gluck set up reserves to inflate losses at the end of Dunlap's first year at the company in 1996. Those reserves were then used to inflate income in subsequent years.
"As a result, for fiscal 1997, at least $60 million of Sunbeam's reported (record-setting) $189 million in earnings from continuing operations came from accounting fraud," said the SEC's statement.
Sunbeam brands include Sunbeam appliances, Coleman camping equipment, Mr. Coffee coffeemakers and First Alert smoke alarms. Its stock has not traded since it filed for bankruptcy protection. 
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