FOR IMMEDIATE RELEASE|
THURSDAY, JANUARY 22, 2004
TDD (202) 514-1888
FORMER VICE PRESIDENT OF CONVERSE, INC., AGREES TO
PLEAD GUILTY IN JUST FOR FEET INVESTIGATION
WASHINGTON, D.C. - Deputy Attorney General James B. Comey, Assistant Attorney General Christopher A. Wray of the Criminal Division, and U.S. Attorney Alice H. Martin of the Northern District of Alabama announced today that Steven G. Dodge, former vice president of U.S. Sales for Converse, Inc., an athletic footwear and apparel company, has been charged with conspiracy to submit false statements to the auditors of Just For Feet, Inc. (JFF) and to falsify the books and records of JFF.
Dodge, 54, of North Andover, Massachusetts, was charged in a one-count criminal information filed today in the U.S. District Court in Birmingham, Alabama. Dodge has agreed to plead guilty to the charge and cooperate with the federal government’s ongoing investigation into JFF’s finances. A hearing on Dodge’s plea will be scheduled at a later date.
Just for Feet, Inc., was a publicly traded corporation with headquarters in Shelby County, Alabama. The company was founded in 1977 with a single store in Birmingham. By 1999 it had grown to be the second largest athletic shoe retailer in the United States, with locations in 30 states and annual sales of approximately $775 million. The company filed for bankruptcy in 1999.
At all times relevant to the offense to which he has agreed to plead guilty, Dodge was the vice president of U.S. Sales for Converse, Incorporated. According to the criminal information, in or around February 1999 and continuing through on or about April 23, 1999, Deloitte & Touche performed its annual audit of JFF’s financial statements for the fiscal year ending Jan. 30, 1999. As part of the audit process involving JFF’s accounts receivable, Deloitte & Touche requested certain vendors to provide written, independent confirmation of the amounts they owed JFF. This was done in the form of an “audit confirmation letter.” The criminal information alleges that during the course of JFF’s annual audit, an executive vice-president of JFF caused the company’s accounting department to record an additional $412,000 in fictitious accounts receivable allegedly due to JFF from Converse as of Jan. 30, 1999. This had the result of causing JFF’s income to be overstated by approximately $412,000.
According to the charges, the executive vice president allegedly sent Dodge an audit confirmation letter, requesting that Dodge, on behalf of Converse, confirm to Deloitte & Touche that Converse actually owed JFF approximately $412,000 “for advertising that ran or merchandise sold prior to January 30, 1999.” Dodge, allegedly knowing that the information contained in the audit confirmation letter was false, and that Converse did not, in fact, owe JFF approximately $412,000, signed it and sent it to Deloitte & Touche. Subsequently, Deloitte & Touche included the false financial information when preparing JFF’s annual financial reports for public filing with the Securities and Exchange Commission. As a result, JFF’s earnings for the fiscal year ending Jan. 30, 1999, as stated in its annual audited financial statement and SEC filings, were overstated by at least approximately $412,000, thereby defrauding the shareholders of JFF.
“As demonstrated by the guilty pleas of an Adidas, Fila USA, and now a Converse executive, the criminal wrongdoing that went on at Just For Feet extended well beyond its own executive suite,” said Deputy Attorney General James B. Comey. “Hopefully, these guilty pleas send a strong message to outside third parties that these financial scams will not be tolerated.”
“Shareholders and the investing public expect the truth -- and deserve it. We will investigate and prosecute not only top corporate executives who lie about their company’s financial condition, but vendors and other third parties who help them do so,” said Assistant Attorney General Christopher A. Wray. “As this agreement to plead guilty and cooperate shows, our Just for Feet investigation is moving forward.”
“Once again in this investigation we see a vendor more concerned about maintaining a corporate account than being accountable to corporate investors with truthful audit confirmation statements,” said U. S. Attorney Alice H. Martin. “This type of complicity in a criminal conspiracy to defraud investors will meet with prosecution.”
The conspiracy charge carries a maximum penalty of five years in prison and a fine of $250,000.
The JFF investigation remains active and ongoing. In April 2003, former JFF President Adam Gilburne pleaded guilty to conspiracy to commit wire and securities fraud. In August 2003, Timothy McCool, the National Sales Director of adidas America, pleaded guilty to conspiracy to submit false statements to the auditors of a publicly traded company and to cause false entries to be made in the books and records of JFF.
On Dec. 18, 2003, Jonathan G. Epstein, the former president and chief executive officer of Fila USA, a wholly owned subsidiary of Fila Holding S.p.A., an Italian company, agreed to plead guilty to conspiracy to submit false statements to the auditors and to falsify the books and records of JFF. A hearing on Epstein’s plea is scheduled for Jan. 28, 2004, in Birmingham.
The investigation is being conducted by the FBI-Birmingham Field Office, with assistance from the SEC, Atlanta District-Enforcement Division. The prosecution is being handled jointly by the United States Attorney’s Office and the Fraud Section of the Criminal Division of the Department of Justice in Washington, D.C. The prosecution is being overseen by the President’s Corporate Fraud Task Force, headed by Deputy Attorney General James Comey.