SEC FILES SETTLED CEASE-AND-DESIST ORDER AGAINST ASHFORD.COM, INC., TWO OF
ITS EXECUTIVES AND AMAZON.COM, INC.; THE COMMISSION FINDS THAT ASHFORD.COM
BEAT ANALYSTS' PRO FORMA EARNINGS EXPECTATIONS BY MISSTATING ITS GAAP RESULTS
{{{{(from the SEC web site)}}}
The Commission announced today the filing of a civil action filed in
federal court against Kenneth E. Kurtzman (Ashford.com's former Chief
Executive Officer) and Brian E. Bergeron (Ashford.com's former Vice
President for Finance). Kurtzman and Bergeron consented, without
admitting or denying the allegations in the Commission's complaint, to
pay civil penalties of $60,000 and $25,000, respectively.
The Commission also announced the filing of a settled cease-and-desist
order against Ashford.com, Inc., Kurtzman, Bergeron and Amazon.com, Inc.
The Commission's Order finds that, in March 2000, Kurtzman and Bergeron,
on behalf of Ashford.com, improperly deferred $1.5 million in expenses
under a contract with Amazon.com, causing Ashford.com to materially
understate its marketing expenses and allowing the company to report a
pro forma net loss of $0.30 per share, just beating analysts' pro forma
earnings estimates of a net loss of $0.31 per share for the quarter
ended March 31, 2000. Without the understatement, Ashford.com would
have reported a pro forma loss of $0.32 per share. The improper
deferral resulted from the settlement of a dispute with Amazon.com using
two separate documents which were prepared by Amazon.com at
Ashford.com's request. Ashford.com subsequently failed to disclose one
of the two documents to its auditors.
The Order also finds that in September 2000, Ashford.com misstated its
pro forma results by changing the classification of expenses on its
income statement. In two previous quarters, Ashford.com had properly
classified these expenses as marketing expenses. But in September 2000,
without disclosing that it had made a change, Ashford.com classified the
expenses as "depreciation and amortization," which improved the
company's pro forma results (which did not take depreciation and
amortization into account).
Additionally, during 2000, Ashford.com misclassified a portion of the
expenses arising under its contracts with Amazon.com, causing
Ashford.com to materially understate its reported marketing expenses and
improve its pro forma results. Under these agreements, Ashford.com
issued common stock in exchange for advertising placements and an
agreement not to compete. Ashford.com, however, classified all of the
expenses under this contract as "depreciation and amortization." This
classification was not in conformity with Generally Accepted Accounting
Principles, because Ashford.com should have classified the portion
attributable to advertising placements as marketing expenses.
The Commission's Order further finds that:
* Ashford.com violated Sections 10(b), 13(a) and 13(b)(2)(A) of the
Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1 and 13a-13
thereunder;
* Kurtzman violated Sections 10(b) and 13(b)(5) of the Exchange Act and
Rules 10b-5, 13b2-1 and 13b2-2 thereunder and was a cause of Ashford.com's
violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules
12b-20 and 13a-1 thereunder;
* Bergeron violated Exchange Act Rule 13b2-1 and was a cause of
Ashford.com's violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act
and Rules 12b-20, 13a-1 and 13a-13 thereunder; and
* Amazon.com, Inc. was a cause of Ashford.com's violation of Section 13(a)
of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.
Ashford.com, Kurtzman, Bergeron and Amazon.com consented, without
admitting or denying the findings in the Commission's Order, to cease-
and-desist from committing or causing violations of the provisions of
the federal securities laws cited above. The allegations in the
Commission's civil action are substantially the same as set forth in the
Commission's Order. [SEC v. Kenneth E. Kurtzman and Brian E. Bergeron,
1:02CV01126 (D.D.C.) (LR-17550, AAE Rel. 1574); (Administrative
Proceeding In the Matter of Ashford.com, Inc., Kenneth E. Kurtzman,
Brian E. Bergeron and Amazon.com, Inc. - Rel. 34-46052, AAE Rel. 1573,
File No. 3- 10797) |
