U.S. Securities and Exchange Commission
Litigation Release No. 18347 / September 12, 2003
United States Securities and Exchange Commission v. Spiegel, Inc., U.S. District Court for the Northern District of Illinois, Case No. 03C-1685
Federal Court Grants SEC Motion to Make Independent Examiner’s Report Public
On September 11, 2003, the Honorable Judge James B. Zagel entered an Order (“Order”) pursuant to a motion by the Securities and Exchange Commission (“Commission”) providing that the Independent Examiner’s Report dated September 5, 2003 be made available to the public. The Order requires that the Independent Examiner’s report be included in the filings for this matter, and also requires that the report be posted on the official website for the United States District Court for the Northern District of Illinois (http://www.ilnd.uscourts.gov) on September 15, 2003.
The Court found that the Independent Examiner’s Report discussed Spiegel’s financial condition and identified material accounting irregularities. In the Order, Judge Zagel found that the information contained in the Independent Examiner’s September 5, 2003 Report is material to the investing public and that it is in the public interest to make the Independent Examiner’s Report available to the public.
The Independent Examiner’s Report was completed as a result of Spiegel’s partial settlement with the Securities and Exhange Commission (“Commission”) in this matter. On March 7, 2003, the Commission filed a civil injunctive action alleging that Spiegel, Inc. (“Spiegel”) violated the federal securities laws by withholding material information from the public. Spiegel consented to the entry of a permanent injunction without admitting or denying the allegations in the Commission’s complaint. The complaint alleged that Spiegel withheld the fact that on or about the beginning of 2002, its independent auditor had notified Spiegel that it may not be able to continue as a “going concern.” The complaint further alleged that Spiegel’s independent auditor later issued an audit report on or about January or February 2002 which stated that the audit firm had “substantial doubts” about Spiegel’s ability to continue as a going concern.
The complaint alleged that Spiegel decided not to make its required 10-K and 10-Q filings to conceal the “going concern” issue from the public. Instead, the company filed a series of Forms NT (notices of late filing) indicating that Spiegel was not in a position to file because various lending agreements were not in place. According to the complaint, statements made by Spiegel executives confirm that Spiegel chose not to make its required filings to avoid disclosing the going concern notice and to avoid the negative “disruptions” that the disclosure of this information would cause. The complaint further alleged that Spiegel failed to disclose its auditor’s “going concern” notice in various press releases and public statements that discussed the company’s financial condition.
As a partial settlement with the Commission, Spiegel consented to the entry of a permanent injunction for violations of Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rules 10b-5, 13a-1 and 13a-13 promulgated thereunder, which was entered on March 11, 2003, as amended on March 27, 2003. The partial settlement required the appointment of an Independent Examiner whose mandate was to prepare a report discussing Spiegel’s financial condition and identifying any accounting irregularities. The Court will determine at a later date whether it is appropriate for Spiegel to pay disgorgement, prejudgment interest and/or civil penalties.
The Commission’s investigation in this matter continues.