Former Warnaco Group CEO Linda Wachner agreed to pay $1.3 million and former company auditor PricewaterhouseCoopers will pay $2.4 million to settle federal regulators' allegations of false financial reporting by the big apparel maker.
The Securities and Exchange Commission announced the settlements Tuesday, following months of negotiations. The agency accused the company of securities fraud for issuing a "false and misleading" press release regarding its financial results on March 2, 1999.
Under the accord, Warnaco will have to hire an independent consultant to review its internal controls and policies and to adopt the consultant's recommendations.
In addition, New York-based Warnaco's former chief financial officer William Finkelstein and former general counsel Stanley Silverstein agreed to pay to settle with the SEC. Finkelstein, who was charged with aiding and abetting the company's fraud, is repaying $189,464 in bonuses for 1998 plus interest, and a $75,000 civil fine. He also will be barred from serving as an officer or director of a publicly traded company for four years. Silverstein is repaying his 1998 bonuses plus interest, for a total $165,772.
Wachner was fired in November 2001, five months after the company filed for bankruptcy protection from creditors. Investors had attributed the company's woes in part to Wachner's management decisions, and the board of directors decided not to pay her severance.
Wachner nonetheless asked for $25.1 million in severance, and later agreed to accept a much smaller package — $3.5 million in unsecured claims for new Warnaco stock and $200,000 in cash.
In the settlement with the SEC, Wachner agreed to repay her bonuses for 1998 plus interest, for a total $1,328,444.
The parties neither admitted to nor denied wrongdoing in the settlements.
The press release in question, which reported "record" results for 1998, failed to disclose that Warnaco had discovered a $145 million inventory overstatement that would require the company to restate and significantly reduce its financial results for the prior three years, the SEC said. The agency said Warnaco falsely described the inventory restatement as a write-off of deferred start-up costs under a new accounting system, while it actually was caused by serious defects in Warnaco's inventory control systems.
A month after issuing the press release, the company filed a misleading annual report for 1998 that correctly accounted for the $145 million restatement but failed to disclose its true cause, the SEC alleged.
PricewaterhouseCoopers, the nation's largest accounting firm, was accused of aiding and abetting the reporting violations in the 1998 annual report by failing to object to Warnaco's description of the inventory overstatement.