Former Sunbeam chief sued by SEC
USA Today
NEW YORK — There's going to be at least one more chapter in the saga of "Chainsaw" Al Dunlap.
Advertiser library photo • March 2, 1998
The Securities and Exchange Commission filed suit against the former chief executive officer of Sunbeam, accusing him and four of his lieutenants of manipulating Sunbeam's earnings in 1997 for the purpose of selling the small appliance maker at an inflated price. The civil suit, filed in U.S. District Court in Miami, also accuses a former partner at Arthur Andersen as being an accomplice in the scheme.
Al Dunlap reveled in his "Chainsaw" nickname.
According to the SEC, Dunlap and four top Sunbeam managers used a variety of accounting tricks to goose up earnings throughout 1997.
Among the alleged tricks:
• Use of "cookie-jar" reserves. At the end of 1996, Sunbeam took a sizable charge against earnings to implement Dunlap's restructuring of the company.
The SEC alleges that Dunlap's team took an unusually big charge, and that management then wrote off various operating expenses from 1997 against the 1996 charge.
According to the SEC's Richard Sauer, the most blatant example of improper writeoffs involved Sunbeam's 1997 advertising expenses.
• Channel stuffing. The SEC accuses Dunlap and his team of offering significant discounts to retailers who stocked up on products months ahead of schedule. The practice, known as "channel stuffing," allows the manufacturer to book sales months earlier than it normally would.
Overall, the SEC claims that these accounting tactics led to bullish quarterly earnings reports in 1997, causing investors to bid the price of the stock up from below $20 when Dunlap arrived to a high of $52 in early 1998.
Sunbeam missed its earnings forecast in early 1998, the stock plummeted and Dunlap was fired.
Ever combative, Dunlap — a cost-cutting fanatic who reveled in the nickname "Chainsaw" and wrote a biography called "Mean Business" — vowed to fight the charges.
"I am outraged that the SEC has chosen to bring these baseless charges against me, and I intend to defend myself vigorously," he said in a statement.
Shares of Sunbeam, which filed for Chapter 11 bankruptcy protection in February, have plummeted, closing at 7 cents yesterday.
