Waiting for the other Jimmy Choo shoe to drop…

June 7, 2007

images1.jpgYou might recall that in 2005 Saks Inc. (SKS), parent company of Saks Fifth Avenue, announced that an internal investigation by the audit committee revealed that during the 1999-2003 fiscal years the firm improperly collected $20 million from vendors in markdown allowances. The company even fired Saks general counsel Brian Martin, Chief Accounting Officer Donald Wright and SFA COO Donald Watros. It was shortly after this fiasco that we footnoted Saks, pointing out its unusual (and late-on-a-Friday) proxy statement.

But it was after the company concluded its investigation that the real fun began. The SEC soon notified Saks that it would begin its own investigation. And then, even more frightening for executives, the U.S. Attorney for the Southern District of New York kicked off an inquiry.

And what’s most interesting is how the company has discussed the investigations in filings since 2005. In most of its Qs, the company concluded its disclosure with the sentence “The company is continuing to fully cooperate with the SEC and the Office of the United States Attorney.”

Then in its K filed in April, Saks’ filings got downright depressing. The company said that the firings and investigations damaged the SFA brand, negatively impacted earnings and hurt employee morale. They added that all of this bad stuff is “diminishing with the passage of time,” but suggested that any enforcement actions might rip the Band-Aid off the wound.

Which brings us to yesterday. The company filed its latest Q and it seems to use the same boilerplate language as previous Qs in the “legal contingencies” section. But the company added a new clause to the last sentence that gives an update of the case, “The Company is continuing to fully cooperate with the SEC and the Office of the United States Attorney, whose investigations the Company understands are continuing.”

So hang on to your $290 Giorgio Armani striped silk scarf, this one isn’t over yet.

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