SEC Drops Zale Investigation

The Securities and Exchange Commission is terminating its investigation of Zale Corp. with no enforcement action being recommended. (See “SEC Probes Zale,” JCK, June 2006, p. 69.)

“We are pleased to put this matter behind us,” Betsy Burton, Zale Corp. president and chief executive officer, said in a statement. “I would like to thank our shareholders, customers, and employees for continuing to demonstrate their confidence in our organization throughout this process.”

Zale announced on April 10 that the SEC had initiated a nonpublic investigation concerning various accounting and other matters related to the company, including accounting for extended service agreements, leases, and accrued payroll. The company said that it believed its accounting complied with generally accepted accounting principles.

The SEC probe led Zale to be subject to several class-action lawsuits charging it with issuing “mis-leading statements” to the market. With the investigation dropped, the status of those suits was unclear at press time. “I would think that this makes their case much more difficult,” David Sternblitz, vice president and treasurer, told JCK.

Zale also named Rodney Carter senior vice president and chief financial officer. Carter, who until his appointment was chief financial officer at Petco, replaces George Mihalko, who joined as acting chief administrative officer and CFO on May 5.

Mihalko replaced former CFO Mark Lenz, who was placed on indefinite administrative leave after allegedly failing to disclose a delay in vendor payments. That incident fell outside the SEC investigation, Sternblitz says. Lenz’s contract has since expired.

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