U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19897 / November 2, 2006
Accounting and Auditing Enforcement
Release No. 2508 / November 2, 2006
Securities and Exchange Commission v. Michael Moran and James Sievers, No. 06-CV-5968, N.D. Ill., November 2, 2006
Securities and Exchange Commission v. Martin Zaepfel, No. 06-CV-5967, N.D. Ill., November 2, 2006
Securities and Exchange Commission v. James Cannataro, No. 06-CV-5961, N.D. Ill., November 2, 2006
Securities and Exchange Commission v. John Steele, No. 06-CV-5965, N.D. Ill., November 2, 2006
Securities and Exchange Commission v. Michael Crusemann and Michael Otto, No. 06-CV-5969, N.D. Ill., November 2, 2006
On November 2, 2006, the Securities and Exchange Commission filed settled enforcement actions against former officers and directors of Spiegel, Inc., an Illinois-based public company. During the relevant period, Spiegel owned and operated catalogue retailers Spiegel, Eddie Bauer and Newport News.
The Commission filed settled charges against the former Co-Presidents of Spiegel, Michael Moran and James Sievers, former CEO Martin Zaepfel, former CFO James Cannataro, and former Treasurer John Steele, in connection with the overstatement of the performance of Spiegel's credit card receivables portfolio. In addition, the Commission settled with the former Chairman of Spiegel's Board of Directors, Michael Otto, and a former director, Michael Crusemann, and former CEO Martin Zaepfel in connection with the decision to withhold Spiegel's required financial reports to avoid issuance by its outside auditor of a "going concern" opinion.
The Commission alleges in its complaints that Moran, Sievers, Zaepfel, Cannataro and Steele improperly increased inter-company fees between Spiegel's retail subsidiaries and Spiegel's bank subsidiary, which had the effect of hiding the deteriorating performance of the company's credit card receivables portfolio. Spiegel was thus able to benefit improperly from the securitization of that portfolio.
The Commission also alleged that former Directors Otto and Crusemann and former CEO Zaepfel all participated in the decision to not file Spiegel's 2001 Form 10-K and first quarter 2002 Form 10-Q on a timely basis. Prior to the deadline for the filing of the Form 10-K, Spiegel's outside auditor informed the company that a "going concern" opinion would accompany the filing unless Spiegel was able to resolve its underlying financial problems. When it failed to resolve those problems by the April 15, 2002 deadline, the company improperly elected to withhold its filing rather than make the required disclosures to the investing public.
In light of the above, the Commission alleged that Moran, Sievers, Zaepfel, Cannataro and Steele violated Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 and violated and aided and abetted violations of various books and records and financial reporting provisions of the Securities Exchange Act of 1934. The Commission also alleged that Otto, Crusemann and Zaepfel aided and abetted Spiegel's violations of the financial reporting provisions of the Exchange Act.
Without admitting or denying the Commission's allegations, Moran, Sievers, Cannataro, Steele, Otto, Crusemann and Zaepfel have consented to the Court's issuance of an order of permanent injunction enjoining them from future violations of the federal securities laws. In addition, Moran, Sievers, Cannataro and Steele have consented to each pay a civil penalty of $120,000. Otto and Crusemann have consented to each pay a civil penalty of $100,000. Zaepfel has consented to pay a civil penalty of $170,000.
SEC Complaints in this matter
Michael Crusemann and Michael Otto
John R. Steele
James R. Cannataro
Michael R. Moran and James W. Sievers