A slap on the wrist for Dunlap:
Ex-CEO barred, to pay $500k
'Chainsaw Al' settles SEC suit
By Associated Press, 9/5/2002
boston.com
WEST PALM BEACH, Fla. - Sunbeam Corp.'s former chairman and chief executive, Al Dunlap, has agreed never again to hold a leadership role in a public company and pay $500,000 to settle a lawsuit charging him with inflating income and other improper accounting practices.
In addition, former chief financial officer Russell Kersh will pay $200,000 under judgments signed yesterday by US District Judge Donald Middlebrooks. The settlements permanently bar both men from serving as officers or directors of any public company, though neither admitted to any wrongdoing.
Through his attorney, Frank C. Razzano, Dunlap said the agreement was ''a welcome outcome'' that allowed him to pursue his retirement. Kersh's attorney, Jeffrey Tew, said the Securities and Exchange Commission set Kersh apart from the others named in the suit by noting that he did not receive performance bonuses or stock options or sell his shares while serving as a company officer.
In the complaint, filed last year, the SEC said the illegal activity began in 1996, when Kersh and others created a ''cookie jar'' of inappropriate accounting reserves. The SEC alleges that after Dunlap arrived that year, he shifted revenue to inflate losses under the old management and boosted income to create the false impression of a rapid turnaround in financial performance. The SEC contends that as a result, at least $60 million of $189 million in before-tax earnings came from accounting fraud in 1997.
Dunlap, Kersh and others also increased revenue at the expense of future results by inducing retail customers to sell merchandise more quickly than normal, a practice known as ''channel stuffing,'' according to the SEC.
By the next year, the SEC alleges, Sunbeam was getting more desperate to hide its mounting financial problems and misrepresented its performance and prospects in its first quarterly report, bond offering materials, news releases, and statements to analysts. Dunlap was ousted in June 1998 and the company restated financial results for 18 months.
Shareholders made similar allegations in a class-action fraud lawsuit, alleging they lost $800 million due to Sunbeam's fraudulent practices. As part of the $141 million settlement reached last month for that suit, Dunlap paid $15 million and Kersh paid $250,000.
Razzano said in a statement that in the class-action suit, Middlebrooks determined the settlement was fair and noted the plaintiffs recognized they had ''no direct evidence'' that Dunlap was aware of the ''improper accounting techniques.''
Dunlap gained the nickname ''Chain Saw Al'' for cutting thousands of jobs at the Boca Raton-based maker of Sunbeam, Oster, Mr. Coffee, First Alert, and other appliances, and for similar moves earlier in his career. In the process, he made millions, and his memoir, ''Mean Business: How I Save Bad Companies and Make Good Companies,'' became a bestseller.
This story ran on page C8 of the Boston Globe on 9/5/2002.
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