NEW YORK — Bradley Stinn, former chief executive officer of jewelry retailer Friedman’s Inc. and its affiliate, Crescent Jewelers, was indicted Friday on federal charges of accounting fraud.
Stinn and unidentified co-conspirators repeatedly lied to shareholders and inflated sales numbers, according to the U.S. Attorney’s Office for the Eastern District of New York. Prosecutors alleged that the company encouraged the sales team to increase volume by persuading customers to finance their jewelry purchases through its credit program, and that more than half of the firm’s $400 million in annual sales were made on credit.
A major goal of the scheme was to cover up Friedman’s inability to collect money for the items bought on credit, prosecutors said. Stinn and other senior executives allegedly encouraged routine violations of the company’s credit guidelines to inflate sales. Instead of disclosing the collection problems, Stinn and the co-conspirators were charged with falsifying the company’s accounting data to conceal the difficulties from investors.
During the period of the alleged fraud, Friedman’s was the third-largest specialty retailer of fine jewelry in the U.S., with 686 stores in 20 states. The company is known for its diamond jewelry, particularly diamond engagement and wedding rings.
Stinn, 47, is accused of conspiracy to commit securities fraud, mail fraud and wire fraud. He faces a maximum of 30 years in prison, if convicted.
The former ceo pleaded not guilty at his arraignment in Brooklyn, and was to be released on a $1 million personal recognizance bond, said his attorney, David Shapiro.
“Friedman’s was and is a successful company, which Brad Stinn helped build, and which the government pushed into bankruptcy — which lasted about a year — as a result of its three-and-a-half-year investigation,” Shapiro said.
The U.S. Attorney’s office said the false earnings numbers led to an artificial inflation of Friedman’s stock price, although no specific amounts were given in the statement issued by prosecutors or in court documents. Between November 2003 and May 2004, Friedman’s stock plummeted to $4.97 from $11.99 before the New York Stock Exchange halted trading.
Friedman’s filed for Chapter 11 bankruptcy protection in January 2005. Stinn and the firm’s chief financial officer stepped down in November 2003, after the government disclosed the results of its investigation, which came after the company restated financial figures for almost four years. Former cfo, Victor M. Suglia, and former controller have already pleaded guilty in the case.
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“The public relies on corporate filings and reports to make informed investment decisions,” U.S. Attorney Roslynn R. Mauskopf said in a statement. “When corporate executives fraudulently manipulate their companies’ reported performance, they not only breach their trust, they defraud their investors.”