Saks Settles With S.E.C. on Overpayments (original) (raw)

Business|Saks Settles With S.E.C. on Overpayments

https://www.nytimes.com/2007/09/06/business/06saks.html

Sept. 6, 2007

Saks Inc., which sells clothing from designers like Oscar de La Renta and Michael Kors, yesterday settled federal charges that it had improperly collected payments from several of those luxury suppliers to inflate its earnings by up to 43 percent in a single year.

The settlement ends an embarrassing investigation over many years by the Securities Exchange Commission that exposed a tangle of illicit tactics that let Saks, the parent company of Saks Fifth Avenue, keep money it owed to clothing makers.

Over seven years, according to the S.E.C., Saks improperly collected roughly $30 million from about a dozen suppliers by abusing practices widely used in the retailing industry.

In one such practice, stores demand payments known as markdown money from suppliers to cover the cost of putting merchandise on sale when demand is weak. At Saks, according to the S.E.C. documents, buyers routinely misled suppliers by overstating the number of products sold at a deep discount to collect greater payments.

Those overpayments had a significant financial impact on suppliers, putting one of them out of business, according to lawsuits filed against Saks.

Saks did not admit any wrongdoing in the S.E.C. settlement and paid no fine. The company said it had repaid all but one of the suppliers it overcharged and had fired at least three executives involved in the fraud.

But Saks’s legal troubles are not over. International Design Concepts, which bought the assets of a former Saks supplier, Apparel Group International, has sued Saks in a case that might head to a trial this fall.

In its lawsuit, International Design Concepts said that Saks demanded at least $10 million in improper payments from Apparel Group International, which produced Oscar de la Renta clothing, eventually forcing the company to close its doors.

“I am not at all surprised at what the S.E.C. alleged in the complaint,” said Donald L. Kreindler of the law firm Phillips Nizer, who is representing International Design Concepts. “We believe we have a very strong case against Saks.”

Saks declined to comment on the lawsuit.

According to the S.E.C. filing, Saks’s practices allowed it to overstate income by 5.4million,or7percent,infiscal2000;by5.4 million, or 7 percent, in fiscal 2000; by 5.4million,or7percent,infiscal2000;by4.2 million, or 32.3 percent, in 2001; by 5.2million,or42.6percent,in2002;andby5.2 million, or 42.6 percent, in 2002; and by 5.2million,or42.6percent,in2002;andby2.6 million, or 3.6 percent, in 2003. Those misstated results eventually made their way into Saks’s annual filings with the S.E.C.

Though the case highlighted a practice extracting payments from suppliers for unsold and discounted merchandise that is used across the retailing industry, much to suppliers’ chagrin, it is unclear whether other retailers have collected overpayments of markdown money.

Andrew M. Calamari, an associate regional director at the S.E.C., said that the case “is getting the message out there that the retail community needs to get its act together and create internal controls over vendor and accounting practices.”

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