Timothy McCool
SECURITIES ACT OF 1933
Release No. 8296 / September 30, 2003
SECURITIES EXCHANGE ACT OF 1934
Release No. 48575 / September 30, 2003
ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1882 / September 30, 2003
ADMINISTRATIVE PROCEEDING
File No. 3-11289
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ORDER INSTITUTING CEASE-AND-DESIST PROCEEDINGS, MAKING FINDINGS, AND IMPOSING A CEASE-AND-DESIST ORDER PURSUANT TO SECTION 8A OF THE SECURITIES ACT OF 1933 AND SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934 |
I.
The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and they hereby are, instituted pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Timothy McCool ("McCool" or the "Respondent").
II.
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over him and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 8A of the Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below.
III.
On the basis of this Order and Respondent's Offer, the Commission finds1 that:
1. Respondent Timothy McCool of Portland, Oregon, was the Director of Sales for the North American division of one of the largest vendors of merchandise (the "Vendor") to Just for Feet, Inc. ("Just for Feet" or the "Company") during 1998 and 1999.
2. Just for Feet, a Delaware corporation based in Birmingham, Alabama, was a national retailer of athletic and outdoor footwear and apparel. Its stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and was traded on the NASDAQ National Market System. Just for Feet filed for protection in November of 1999 under Chapter 11 of the Bankruptcy Code. This was later converted to a Chapter 7 liquidation proceeding in 2000.
3. Just for Feet incurred large amounts of advertising expenses. Most of its vendors offered financial assistance through unwritten agreements to Just for Feet to help pay for these advertising expenses. This assistance was termed "advertising co-op" or "vendor allowances." When Just for Feet promoted a particular vendor's products in one of its advertisements, that vendor might agree to offer advertising co-op to the Company to share the costs of the advertisement. Just for Feet often deducted these amounts as credits against future payments it made to its vendors for merchandise.
4. McCool, the Director of Sales for the North American subsidiary of the Vendor, signed on April 20, 1999, an audit confirmation letter sent to him by a Just for Feet officer, confirming that his company owed approximately $2.27 million in advertising co-op receivables to Just for Feet, and then sent it to Just for Feet's auditors. The letter clearly stated that the confirmation was in connection with the audit of Just for Feet's financial statements.
5. In fact, the Vendor owed no advertising co-op receivables to Just for Feet as of January 30, 1999. McCool knew this, but nonetheless signed and submitted the confirmation letter.
6. Also on April 20, 1999, McCool sent a "Disclaimer" to the Just for Feet officer who had sent the audit confirmation to him, stating, in effect, that the audit confirmation would become void if Just for Feet attempted to collect, based solely on the confirmation, any of the credits contained in the $2.27 million in receivables purportedly owed to it by the Vendor.
7. The $2.27 million in fictitious receivables confirmed by McCool increased the income and/or assets reported in Just for Feet's fiscal 1998 Form 10-K, filed with the Commission on April 30, 1999, Forms 10-Q for the first and second quarters of fiscal 1999, filed on June 14, 1999, and September 27, 1999, respectively, a registration statement on Form S-8 filed on May 3, 1999 and a registration statement on Form S-4 filed on June 14, 1999. The amount confirmed by McCool was a material part of the financial statements included in these filings.
8. By the acts and practices described above, McCool caused Just for Feet to violate Section 17(a) of the Securities Act, which prohibits fraudulent conduct in the offer and sale of securities, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in connection with the purchase or sale of securities. McCool also caused Just for Feet to violate Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13, which require that issuers of securities file annual and quarterly reports with the Commission prepared in conformity with the requirements of the Commission's rules and regulations and containing such other information as is necessary to ensure that the statements made in those reports are not, under the circumstances, materially misleading.
IV.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions specified in Respondent's Offer.
Accordingly, it is hereby ORDERED that Respondent McCool cease and desist from committing or causing any violations and any future violations of Section 17(a) of the Securities Act and Sections 10(b) of the Exchange Act and Rule 10b-5 thereunder and from causing any violations and any future violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
By the Commission.Jonathan G. Katz
Secretary
1 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.