Saks Inc. said yesterday that it had reached a settlement with federal securities regulators over deceptive practices that materially overstated income at the company’s Saks Fifth Avenue chain, hours after the Securities and Exchange Commission filed a civil complaint against the retailer.
The agreement brings to a close a series of investigations, first by Saks senior management and then federal authorities, that dates to September 2002, and which touched off a broader probe into the industry practice of collecting chargebacks from vendors.
Former vendors seeking class-action status have sued Macy’s over the matter, and Home Depot has acknowledged that the SEC is investigating it for similar practices.
In its complaint, filed yesterday in Manhattan federal court, the SEC alleged that Saks Fifth Avenue employees violated financial reporting, books-and-records and internal control provisions of the 1934 Securities Exchange Act.
Saks said it settled the matter without admitting or denying wrongdoing and has agreed to an injunction barring future violations of these provisions. Saks also said that no fines or monetary sanctions were levied against the company.
In one example of the improper practices, Saks Fifth Avenue employees purposely understated the sales of vendor merchandise, allowing them to collect millions of dollars in allowance payments to which they were not entitled, according to the SEC.
The extra payments allowed Saks to overstate net income for fiscal 2000 by $5.422 million, or 7 percent; fiscal 2001 by $4.183 million, or 32.3 percent; fiscal 2002 by $5.159 million, or 42.6 percent; and fiscal 2003 by $2.593 million, or 3.6 percent.
In a separate practice, employees improperly deferred permanent merchandise markdowns from one period to another, which had the effect of overstating inventory and net income in certain periods and understating them in other periods.