Friedman’s Inc. Board of Directors has appointed Richard Cartoon as chief financial officer of the company. Victor M. Suglia, the company’s former CFO who has been on a leave of absence, has resigned effective immediately.
It is the latest in a series of personnel moves that Friedman’s has made since the company revealed that that it is being investigated by the U.S. Justice Dept. and the Securities and Exchange Commission (SEC). The company also underwent its own internal audit. The initial findings of the reviews caused the company’s stock price to plunge and resulted in multiple class-action lawsuits against the company by shareholders.
Cartoon has more than 28 years of financial and strategic experience. For the past two years, he served as executive vice president and CFO of Lodgian Inc. From 1986 to 1999, he was s senior manager and then a partner with Ernst & Young’s Restructuring and Reorganization Group. Cartoon also is President of Richard Cartoon LLC, a management consulting firm. He is a member of the Georgia State Society of Certified Public Accountants and of the Institute of Chartered Accountants (S.A.).
On Dec. 4, Friedman’s board announced that it had appointed Cartoon as its “internal financial consultant.” It was one of a number of personnel moves that day that included the resignation of Bradley J. Stinn, Friedman’s long-time CEO, from the company and the board; the naming of Robert Cruickshank as non-executive chairman of the board; and the creation of a new “Office of the Chairman” comprising Cruickshank, Cartoon, and Douglas Anderson, Friedman’s president and chief operating officer. The company also announced that it would suspend payment of its fourth-quarter dividend.
On Nov. 11, the same day Suglia was put on a leave of absence, Friedman’s disclosed that the SEC and the Justice Dept. had expanded a fraud investigation to include a review of its doubtful-accounts allowance. Friedman’s had originally announced that the allowance would be 10.5% of accounts receivable. On Nov. 11, it raised the estimate to 14% to 17%, “pending further review,” and after continued analysis, the company said on Nov. 17 it believed bad debt could exceed 17%. Friedman’s also said on Nov. 17 that it would have to restate its financial results for fiscal years 2000, 2001, 2002, and the first three quarters of 2003 over its accounting of bad debt. The company’s auditor, Ernst & Young, withdrew its audit opinion on past earnings.
The SEC, Justice Department, and internal-audit investigations are related to an Aug. 13 lawsuit filed against Friedman’s Inc., Crescent Jewelers, Whitehall Jewellers, and several other companies by receivables factoring company Capital Factors for alleged misrepresentation of the accounts receivable of Cosmopolitan Gem Corp., a Bangkok jewelry maker and a former vendor of Friedman’s. Because of the misrepresentation, claims Capital Factors, it continued to advance funds to Cosmopolitan. Capital Factors also alleged they improperly made payments on accounts with Cosmopolitan directly to Cosmopolitan.
Capital Factors is suing for at least $30 million and punitive damages.
Meanwhile, no fewer than 15 law firms have filed class-action suits in federal courts in Georgia and New York on behalf of shareholders who have acquired Friedman’s Inc. stock since 2003. All of the suits allege that Friedman’s violated generally accepted accounting principles by improperly understating the allowance for doubtful accounts for credit program receivables. This had the effect of materially overstating revenue and income, the lawsuits allege.
Friedman’s Inc. operates 702 stores in 20 states, 474 in power strip centers and 228 in regional malls. Its West Coat affiliate, Crescent Jewelers, has 175 stores in six western states, 101 in regional malls and 74 in power strip centers. Together, they operate 877 stores in 25 states. Friedman’s primary customers are low- to middle-income consumers ages 18 to 45.