FOR IMMEDIATE RELEASE 2001-49 SEC SUES FORMER CEO, CFO AND OTHER TOP FORMER OFFICERS OF SUNBEAM CORPORATION IN MASSIVE FINANCIAL FRAUD COMPLAINT ALSO CHARGES FORMER ARTHUR ANDERSEN ENGAGEMENT PARTNER WITH FRAUD COMPANY AND ITS FORMER GENERAL COUNSEL SETTLE RELATED ADMINISTRATIVE PROCEEDINGS Washington DC, May 15, 2001 - The Securities and Exchange Commission today filed a civil injunctive action in U.S. District Court in Miami, Florida charging 5 former officers of Sunbeam Corporation and the former engagement partner on the Arthur Andersen LLP audits of Sunbeam's financial statements with fraud, resulting in billions of dollars of investor losses. The defendants are: Sunbeam's former CEO and chairman Albert J. Dunlap; former principal financial officer Russell A. Kersh; former controller Robert J. Gluck; former vice-presidents Donald R. Uzzi; and Lee B. Griffith; and Arthur Andersen LLP partner Phillip Harlow. In related matters, the Commission instituted settled administrative proceedings against Sunbeam and its former General Counsel, David Fannin. The Commission's complaint in the injunctive action alleges that senior management of Sunbeam, led by Dunlap and Kersh, engaged in a fraudulent scheme to create the illusion of a successful restructuring of Sunbeam and thus facilitate a sale of the Company at an inflated price. According to the complaint, the defendants employed a laundry list of fraudulent techniques, including creating "cookie jar" revenues, recording revenue on contingent sales, accelerating sales from later periods into the present quarter, and using improper bill and hold transactions. Richard H. Walker, the SEC's Director of Enforcement, stated: "Accurate and reliable financial reporting is the bedrock of our capital markets. This case is the latest in our ongoing fight against fraudulent earnings management practices that have caused investors billions of dollars in losses and threaten to undermine the integrity of our markets. As the case makes clear, we will attack such conduct aggressively in whatever guise it may appear (in this case, practices ranging from "cookie jar" reserves to channel stuffing) and against whomever may be involved (here, senior company management and the outside auditor)." According to the Commission's Complaint: * Dunlap, a turnaround specialist, was hired by Sunbeam's Board in July 1996 to restructure the financially ailing Company. Dunlap placed Kersh in charge of Sunbeam's finance organization. Soon after their arrival, Dunlap and Kersh promised a rapid turnaround to enable Sunbeam to substantially improve its financial performance. Together with Sunbeam senior executives Gluck, Uzzi, and Griffith, they then employed improper accounting techniques and undisclosed non-recurring transactions to meet promised sales and earnings figures. These actions inflated the price of Sunbeam shares to a high of $52 per share in March 1998. If the Company had been sold at an inflated share price, Dunlap and Kersh could have reaped tens of millions of dollars from the sale of their Sunbeam securities. * The illegal conduct began at year-end 1996 with the creation by Kersh and Gluck of inappropriate accounting reserves, which increased Sunbeam's reported loss for 1996. These "cookie-jar" reserves were then used to inflate income in 1997, thus contributing to the false picture of a rapid turnaround. In addition, to further boost income in 1997, and to create the impression that Sunbeam was experiencing significant revenue growth, Dunlap, Kersh, Gluck, Uzzi, and Griffith ("the Sunbeam officers") caused the Company to recognize revenue for sales that did not meet applicable accounting rules. As a result, for fiscal 1997, at least $60 million of Sunbeam's reported (record-setting) $189 million in earnings from continuing operations came from accounting fraud. * Also in 1997, the Sunbeam officers failed to disclose that Sunbeam's 1997 revenue growth was, in part, achieved at the expense of future results. The Company had offered discounts and other inducements to customers to sell merchan dise immediately that otherwise would have been sold in later periods, a practice also known as "channel stuffing." The resulting revenue shift threatened to suppress Sunbeam's future results of operations. * Phillip E. Harlow, a partner at Arthur Andersen, Sunbeam's outside auditing firm, authorized unqualified audit opinions on Sunbeam's 1996 and 1997 financial statements although he was aware of many of the Company's accounting improprieties and disclosure failures. * In early 1998, the Sunbeam officers took increasingly desperate measures to conceal the Company's mounting financial problems, meanwhile attempting to finance the acquisition of three other companies, in part through a bond offering. The Sunbeam officers again engaged in, and recognized revenue for, sales that did not meet the applicable accounting rules; again caused Sunbeam to engage in acceleration of sales revenue from later periods; deleted certain corporate records to conceal pending returns of merchandise; and misrepresented the Company's performance and future prospects in its filing on Form 10-Q for the first quarter of 1998, its offering materials in connection with the bond offering, its press releases, and its communications with analysts. * In June 1998, negative statements in the press about the quality of the Company's earnings prompted Sunbeam's Board of Directors to begin an internal investigation. This resulted in the termination of Dunlap, Kersh and other members of Company management and, eventually, to an extensive restatement of Sunbeam's financial statements from the fourth quarter of 1996 through the first quarter of 1998. Sunbeam is presently in a reorganization proceeding under Chapter 11 of the U.S. Bankruptcy Code. According to the Commission's Complaint, through this conduct, Dunlap, Kersh, Gluck, Uzzi, and Griffith violated the anti-fraud, reporting and other provisions of the federal securities laws. The Commission seeks, as to all defendants, permanent injunctions against future violations and civil penalties and, in the case of Dunlap, Kersh, Gluck, and Uzzi, permanent bars from acting as an officer or director of any public company. In a related matter, the Commission filed an administrative proceeding against Sunbeam Corporation, based in part on allegations that Sunbeam's filings with the Com mission were materially false and misleading from the fourth quarter of 1996 through the first quarter of 1998. Without admitting or denying the allegations in the Order Instituting Proceedings, Sunbeam consented to the entry of a cease-and-desist order prohibiting future violations of the anti-fraud, reporting, books and records, and internal controls provisions of the securities laws. In another related matter, the Commission filed a settled administrative action against David C. Fannin, former Executive Vice President, General Counsel and Secre tary of Sunbeam, based on allegations that Fannin participated in the drafting of certain Sunbeam press releases in early 1998 that presented a misleading picture of the Company's results of operations. Without admitting or denying the Commission's allegations, Fannin consented to the entry of a cease-and-desist order prohibiting future violations of Section 17(a)(3) of the Securities Act. Persons to Thomas C. Newkirk Richard C. Sauer Contact: (202) 942-4550 (202) 942-4777 # # #