U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission

IN THE UNITED STATES DISTRICT COURT
FOR THE MIDDLE DISTRICT OF TENNESSEE
NASHVILLE DIVISION


Securities and Exchange Commission,

Plaintiff,   

v.

DOROTHY L. MAHLER, JOHN W. BRACEWELL, III, and PATRICIA L. JONES,

Defendants.   


:
:
:
:
:
:
:
:
:
:
:
:
:
:

Civil Action File No.
____________

COMPLAINT FOR INJUNCTIVE AND OTHER RELIEF

The Securities and Exchange Commission ("Commission") files this Complaint for Injunctive and Other Relief as follows:

INTRODUCTION

1. This matter involves a financial reporting fraud perpetrated during 2001 by two officers and certain other employees of Genesco, Inc. ("Genesco"), a company that sells footwear and accessories headquartered in Nashville, Tennessee.

2. In order to meet sales targets for the fourth quarter of fiscal year 2001 (which ended February 3, 2001), Dorothy L. Mahler ("Mahler"), President of Genesco Inc.'s Johnston & Murphy division, directed John W. Bracewell ("Bracewell"), a Johnston & Murphy vice president, and Patricia L. Jones ("Jones"), Johnston & Murphy's Director of Customer Care, to take whatever action was necessary to ensure that the division achieved its sales targets. Bracewell and Jones carried out Mahler's directive by causing Genesco improperly to recognize $2.8 million of sales revenue in advance of a customer's requested shipping date. Genesco included the resulting overstatement of sales and earnings on the financial statements it included in its Form 10-K for fiscal year 2001 filed with the Commission in May 2001.

3. Defendants Mahler, Bracewell and Jones have engaged in, and unless restrained and enjoined by this Court, will continue to engage in, acts and practices which constitute and will constitute violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. 78j(b) and 78m(b)(5)] and Rules 10b-5 and 13b2-1 thereunder [17 C.F.R. 240.10b-5 and 240.13b2-1], and acts and practices that aid and abet Genesco's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act [15 U.S.C. 78m(a) and 78m(b)(2)(A)] and Rules 12b-20 and 13a-1 thereunder [17 C.F.R. 240.12b-20 and 240.13a-1].

JURISDICTION AND VENUE

4. The Commission brings this action pursuant to Sections 21(d) and 21(e) of the Exchange Act [15 U.S.C. 78u(d) and 78u(e)] to enjoin the defendants from engaging in transactions, acts, practices and courses of business alleged in this complaint, and transactions, acts, practices, and courses of business of similar purport and object, for disgorgement of illegally obtained funds and prejudgment interest, other equitable relief, and for civil money penalties.

5. This Court has jurisdiction of this action pursuant to Sections 21(d), 21(e) and 27 of the Exchange Act [15 U.S.C. 78u(d), 78u(e) and 78aa].

6. The defendants, directly and indirectly, have made use of the mails and the means and instrumentalities of interstate commerce, in connection with the transactions, acts, practices and courses of business alleged in this Complaint.

7. Venue lies in this Court pursuant to Section 27 of the Exchange Act [15 U.S.C. 78aa] because defendants Mahler, Bracewell and Jones reside within this district, and because certain of the transactions, acts, practices and courses of business constituting violations of the Securities Act and Exchange Act have occurred within the Middle District of Tennessee.

THE DEFENDANTS

8. Dorothy L. Mahler, age 53, was President of Genesco's Johnston & Murphy division until she resigned, at Genesco's request, in December 2001. She received a performance-based cash bonus of $134,000 for fiscal 2001.

9. John W. Bracewell III, age 54, served as a vice president in the Johnston & Murphy division and reported to Mahler during the relevant period. He received a performance-based cash bonus of $42,000 for fiscal 2001. Bracewell, who joined Genesco in September 1975, resigned at Genesco's request in early January 2002.

10. Patricia L. Jones, age 55, was Director of Customer Care in the Johnston & Murphy division during the relevant period. Jones is still an employee of Genesco, but now works as a systems cost analyst in the construction and store planning division.

RELATED PARTIES

11. Genesco Inc., is a Tennessee corporation headquartered in Nashville, Tennessee. Genesco sells footwear and accessories, principally under the Johnston & Murphy, Jarman, and Dockers brands. As of February 1, 2003, Genesco had approximately 5,700 employees. Genesco's common stock is registered pursuant to Section 12(b) of the Exchange Act and is listed on the New York Stock Exchange under the symbol "GCO".

12. Mary E. Crabtree, age 60, was employed by Genesco for 34 years and served as Distribution Manager at its Nashville distribution center since 1980. Crabtree retired, at Genesco's request, in late December 2001.

THE SCHEME TO OVERSTATE EARNINGS DURING 2001

13. During the final weeks of Genesco's fiscal year 2001 fourth quarter (which ended February 3, 2001), Jones informed Bracewell that the wholesale division would probably fall far short of budgeted sales for the period. At this time, Jones's latest projection indicated that the division was about $2.0 million short of its $6.8 million target for the last month of fiscal 2001.

14. On January 29, 2001, Genesco announced that, among other items, it anticipated meeting or exceeding its previous fourth quarter forecast of $0.53 per diluted share before discontinued operations. The following trading day, the market reacted favorably to this news, closing up $3.55, or 15.9%, to $25.90.

15. On January 31, 2001, in light of Genesco's affirmation of its forecast, Mahler held a staff meeting where the principal topic was whether the wholesale division was going to "make its numbers." Bracewell attended the meeting. With only three business days left in the fiscal year (which ended on Saturday, February 3) the division was short of meeting its sales targets because demand was less than projected in some areas of the business and certain types of inventory were not available to fill customer orders.

16. At the staff meeting, Mahler, Bracewell and others discussed options for achieving the targets, including the possibility of shipping goods early to Dillard's, Inc., a major customer who had requested delivery of several orders in the next period. This option was tabled after one participant told the group that Dillard's had already been contacted and had refused early shipment. Several other ideas were discussed, but the group found no solution.

17. At the conclusion of this meeting, Mahler asked Bracewell and two other members of her senior staff to remain for another meeting, and Bracewell invited Jones, who did not attend the earlier meeting.

18. The participants in the second meeting continued the previous meeting's discussion concerning how the division was going to make its targets for the fourth quarter of fiscal 2001. As in the earlier meeting, someone mentioned that a large portion of the shortage could be eliminated if Dillard's could be convinced to accept early delivery of its unfilled orders. These orders were scheduled for delivery during the first week of the next quarter. Mahler insisted that Dillard's orders for early next period be shipped immediately and the sale recorded in the fourth quarter even though Dillard's refused to accept early delivery. Jones told the group that this would not work because Dillard's provided its carriers with a shipping list, and the carriers would not accept shipments that are not on the list. Mahler suggested booking the order as a January sale, but not shipping the goods until the following quarter.

19. At the meeting, Mahler indicated that anything less than achieving the target was "unacceptable" and directed that Bracewell and other staff "should do whatever they needed to make it happen" (i.e., achieve targeted sales). She also indicated that she did not want to know how it was done. At the close of the meeting, Mahler told the group not to mention their discussion outside of the meeting room, and she instructed the group not to discuss what was said with the division controller.

20. Later on the same day, Jones informed Bracewell that she believed that Crabtree could get the Dillard's orders for the first week of the next period out by the fiscal year's end. However, Dillard's purchase orders did not call for shipment until Monday, February 5, which was in the next fiscal year.

21. Bracewell met with Mahler and apprised her of what Jones had proposed. Mahler instructed him to meet with Jones and Crabtree to discuss the proposal and report back to her. Bracewell met with Jones and Crabtree that afternoon in the Johnston & Murphy division conference room. The group discussed whether the Dillard's orders could be processed and shipped before the end of the fiscal year.

22. Inventory for the orders would probably arrive late Friday, February 2, 2001, and therefore could not be shipped to Dillard's until Saturday, the last day of the fiscal year.

23. After discussion with Crabtree, Bracewell told Mahler that Crabtree said that she could get the goods out and that Jones and Crabtree had shipped goods in advance of requested shipping dates on prior occasions. Mahler told Bracewell to proceed with shipping early. Bracewell told Jones that Mahler had approved early shipment, and Jones instructed Crabtree to proceed with arrangements for shipment on Saturday. Jones contacted the information technology ("IT") department to request that the computer system remain active on Saturday because Friday was the wholesale division's customary cut-off date for shipments.

24. Bracewell and Jones then informed the division controller that they intended to ship certain orders on Saturday and the IT department had already been contacted to facilitate the requested scheduling change. The division controller advised Bracewell and Jones that the goods had to be actually picked up before the shipment could be booked as revenue. Bracewell advised the controller that trucks would pick up the goods

25. On Friday, February 2, 2001, Jones told Crabtree that it was imperative that the shipment went out, or at a minimum, was booked as January business. Jones told Crabtree that Bracewell's instructions were for her to ship the goods and that if she did not come through, she was not a "team player." Crabtree advised Jones that the order could not be shipped at that time, but Jones replied that Bracewell wanted the goods on the dock ready for shipping and invoicing on Saturday.

26. Jones arrived at her office Saturday morning and electronically transmitted the remaining orders to Crabtree for processing. Crabtree's staff prepared the goods for shipment and departed from Genesco's policy when they scanned the bills of lading, which indicated to Genesco's computer system that shipment had occurred. No carriers arrived that day and no shipment occurred. That evening, the system created invoices for all of the scanned bills of lading, and recorded sales revenue for the inaccurate and improper transactions on Genesco's books.

27. The following Monday, Crabtree told Jones that the goods were not shipped. Bracewell asked whether the Johnston & Murphy division met its targets, and Jones told him they did; however, Bracewell did not inquire further as to how the targets were met.

28. In November 2001, when Jones advised Genesco's Human Resource department that she could not sign her annual ethics certification because of her participation in certain conduct that occurred in January 2001, Genesco, based upon Jones' description of the conduct, initiated an internal investigation. Genesco's investigation initially focused on the scheme carried out by Mahler, Bracewell, and Jones.

29. On December 18, 2001, Genesco issued a press release and filed a Form 8-K announcing that its third quarter fiscal year 2002 quarterly report, filed on the same day, reflected the correction of certain erroneous entries relating to the timing of certain shipments in its Johnston & Murphy division.

30. As a result of the defendants causing sales revenue to be recorded that was not actually earned during the quarter or fiscal year, Genesco's reported consolidated net sales revenue and consolidated net earnings for the 2001 fiscal year and the fourth quarter were materially overstated, as described in the following tables.

Consolidated Net Sales - in thousands

Reporting Period

Origin'ly Reported

As Adjusted

Amount Misstated

% Misstated

Qtr. End 2/3/01

$ 214,193

$ 211,935

$ 2,258

1.1 %

Year End 2/3/01

680,166

677,325

2,841

0.4


Consolidated Net Earnings - in thousands

Reporting Period

Origin'ly Reported

As Adjusted

Amount Misstated

% Misstated

Qtr. End 2/3/01

$ 12,290

$ 11,960

$ 330

2.7 %

Year End 2/3/01

29,598

29,128

470

1.6

31. As a result of the overstatements of revenues and earnings described above, Genesco reported in its Form 10-K, falsely, that the Johnson & Murphy division, which was responsible for 28 percent of Genesco's consolidated sales revenues, had increased fourth quarter earnings from $7.3 million in the fourth quarter of 2000 to $7.6 million in the fourth quarter of 2001. In fact, the division's fourth quarter earnings actually decreased from 2000 to 2001, but for the inaccurate and improper recording of the sales.

32. The overstatements of revenues and earning resulting from the defendants' conduct described above increased the yearly performance bonuses paid to Mahler and Bracewell. As a result of improperly including the inaccurate sales in fiscal year 2001, Mahler's performance based bonus increased by at least $17,675, and Bracewell's performance based bonus increased by at least $8,000.

COUNT I-FRAUD

Violations of Section 10(b) of the Exchange Act
[15 U.S.C. 78j(b)]and Rule 10b-5 thereunder [17 C.F.R. 240.10b-5]

33. Paragraphs 1 through 32 are hereby realleged and are incorporated herein by reference.

34. Defendants Mahler, Bracewell, and Jones, during 2001, in connection with the purchase or sale of securities described herein, by the use of the means and instrumentalities of interstate commerce and by use of the mails, directly and indirectly:

  1. Employed devices, schemes, and artifices to defraud;
     
  2. made untrue statements of material facts and omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading; and
     
  3. engaged in acts, practices, and courses of business which would and did operate as a fraud and deceit upon the purchasers of such securities, all as more particularly described in the paragraphs above.

35. Defendants Mahler, Bracewell, and Jones knowingly, intentionally, and/or recklessly engaged in the aforementioned devices, schemes and artifices to defraud, made untrue statements of material facts and omitted to state material facts, and engaged in fraudulent acts, practices and courses of business. In engaging in such conduct, Defendants Mahler, Bracewell, and Jones acted with scienter, that is, with intent to deceive, manipulate or defraud or with a severe reckless disregard for the truth.

36. By reason of the foregoing, Defendants Mahler, Bracewell, and Jones, directly and indirectly, have violated, are violating and, unless enjoined, will continue to violate Section 10(b) of the Exchange Act [15 U.S.C. 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. 240.10b-5].

COUNT II-AIDING AND ABETTING REPORTING PROVISIONS

Liability of Mahler, Bracewell, and Jones for Aiding and Abetting Genesco's Violations of Section 13(a) of the Exchange Act [15 U.S.C. 78m(a)] and Rules 12b-20 and 13a-1 thereunder [17 C.F.R. 240.12-20 and 240.13a-1]

37. Paragraphs 1 through 32 are hereby realleged and are incorporated herein by reference.

38. Defendants Mahler, Bracewell, and Jones, during 2001, aided and abetted Genesco's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder, which occurred when Genesco filed an annual report that contained financial statements that were not prepared in conformity with generally accepted accounting principles ("GAAP") and contained material misstatements.

39. Through the conduct described in the above paragraphs, Defendants Mahler, Bracewell, and Jones knowingly or recklessly substantially assisted Genesco's violations of this section and rules.

40. By reason of the foregoing, Defendants Mahler, Bracewell, and Jones have aided and abetted violations, and, unless enjoined, will continue to aid and abet violations of 13(a) of the Exchange Act [15 U.S.C. 78m(a)] and Rules 12b-20 and 13a-1 [17 C.F.R. 240.12-20 and 240.13a-1] thereunder.

COUNT III- AIDING AND BETTING BOOKS AND RECORDS AND INTERNAL CONTROLS VIOLATIONS

Liability of Mahler, Bracewell, and Jones for Aiding and Abetting Genesco's Violations of Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. 78m(b)(2)(A)]

41. Paragraphs 1 through 32 are hereby realleged and are incorporated herein by reference.

42. Defendants Mahler, Bracewell, and Jones, during 2001, aided and abetted Genesco's violations of Section 13(b)(2)(A) of the Exchange Act, which occurred when Genesco failed to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflected the transactions and dispositions of Genesco's assets.

43. Through the conduct described in the above paragraphs, Mahler, Bracewell, and Jones knowingly or recklessly substantially assisted Genesco's violations of these sections.

44. By reason of the foregoing, Defendants Mahler, Bracewell, and Jones have aided and abetted violations, and, unless enjoined, will continue to aid and abet violations of Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. 78m(b)(2)(A)].

COUNT IV- BOOKS AND RECORDS AND INTERNAL CONTROLS VIOLATIONS

Violations of Section 13(b)(5) of the Exchange Act [15 U.S.C. 78m(b)(5)] and Rule 13b2-1 [17 C.F.R. 240.13b2-1] thereunder

45. Paragraphs 1 through 32 are hereby realleged and are incorporated herein by reference.

46. Defendants Mahler, Bracewell, and Jones, during 2001, singly or in concert, knowingly circumvented Genesco's internal accounting controls, knowingly failed to implement certain systems of internal accounting controls, knowingly falsified and caused to be falsified Genesco's books, records and accounts described in Section 13(b)(2) of the Exchange Act [15 U.S.C. 78m(b)(2)], as described in paragraphs 1 through 32.

47. Mahler, Bracewell and Jones knowingly failed to implement a system of internal accounting controls, which resulted in the improper recording of assets on Genesco's books, records and accounts, as described in paragraphs 1 through 32.

48. Defendants Mahler, Bracewell and Jones during 2001, singly or in concert:

  1. made or caused to be made materially false or misleading statements; and
     
  2. omitted to state, or caused another person to omit to state, material facts necessary in order to make statements made, in light of the circumstances under which such statements were made, not misleading, to an accountant in connection with (1) an audit or examination of the financial statements of the issuer required to be made pursuant to Section 13 of the Exchange Act; and (2) the preparation or filing of a document or report required to be filed with the Commission pursuant to this subpart or otherwise,
     
  3. as described in paragraphs 1 through 32 above.

49. By reason of the foregoing, defendants Mahler, Bracewell and Jones have violated, and unless restrained and enjoined, will continue to violate Section 13(b)(5) of the Exchange Act [15 U.S.C. 78m(b)(5)] and Rule 13b2-1 thereunder [17 C.F.R. 240.13b2-1].

PRAYER FOR RELIEF

WHEREFORE, Plaintiff Commission, respectfully prays that the Court:

I.

Make findings of fact and conclusions of law in accordance with Rule 52 of the Federal Rules of Civil Procedure.

II.

Issue permanent injunctions enjoining defendants Mahler, Bracewell, and Jones and their agents, servants, employees, attorneys, and all persons in active concert or participation with them who receive actual notice of the order by personal service or otherwise, and each of them:

(a) from violating Section 10(b) of the Exchange Act [15 U.S.C. 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. 240.10b-5];

(b) from aiding and abetting violations of Section 13(a) of the Exchange Act [15 U.S.C. 78m(a)] and Rules 12b-20 and 13a-1 thereunder [17 C.F.R. 240.12b-20 and 240.13a-1];

(c) from aiding and abetting violations of Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. 78m(b)(2)(A)]; and

(d) from violating Section 13(b)(5) of the Exchange Act [15 U.S.C. 78m(b)(5)] and Rule 13b2-1 thereunder [17 C.F.R. 240.13b2-2].

III.

Issue an Order requiring defendants Mahler and Bracewell to disgorge any ill-gotten gains and losses avoided as a result of the conduct alleged in the Commission's Complaint, plus pay prejudgment interest thereon.

V.

Issue an Order requiring defendants Mahler and Bracewell, pursuant to Sections 21(d)(3) and 21A of the Exchange Act [15 U.S.C. 78u(d)(3) and 78u-1], to pay civil monetary penalties.

VI.

Issue an Order pursuant to Section 21(d)(2) of the Exchange Act [15 U.S.C. 78u(d)(2)] permanently prohibiting defendant Mahler from acting as an officer or director of any issuer that has a class of securities registered with the Commission pursuant to Section 12 of the Exchange Act [15 U.S.C. 78l] or that is required to file reports with the Commission pursuant to Section 15(d) of the Exchange Act [15 U.S.C. 78o(d)].

VII.

Issue an Order that retains jurisdiction over this action in order to implement and carry out the terms of all orders and decrees that may have been entered or to entertain any suitable application or motion by the Commission for additional relief within the jurisdiction of this Court.

VIII.

Grant such other and further relief as may be necessary and appropriate.

Dated: December , 2003

RESPECTFULLY SUBMITTED,

_____________________
William P. Hicks
DISTRICT TRIAL COUNSEL

COUNSEL FOR PLAINTIFF
SECURITIES AND EXCHANGE COMMISSION
3475 Lenox Road, N.E., Suite 1000
Atlanta, Georgia 30326-1234
(404) 842-7675


http://www.sec.gov/litigation/complaints/comp18508.htm


Modified: 12/18/2003