Tuesday, June 11, 2002
SEC settles dispute with Ashford.com, Amazon.com
By HELEN JUNG
AP Business Writer
SEATTLE — The Securities and Exchange Commission has fined two executives of Internet retailer Ashford.com $85,000 and ordered the Houston company to refrain from committing accounting fraud violations the agency said resulted in misleading financial results.
In addition, the SEC ordered Seattle-based Internet retailer Amazon.com to refrain from causing accounting violations.
In the settlement announced Monday, neither the two executives nor the companies admitted any wrongdoing.
The SEC found that online jewelry retailer Ashford.com, now owned by Houston-based Global Sports Inc., in March 2000 improperly deferred $1.5 million in expenses that stemmed from a deal with Amazon.com. The move allowed Ashford to report a pro forma net loss of 30 cents per share, beating analysts' estimates by a penny per share, and better than the 32 cents per share loss the company would otherwise have reported, the SEC said.
The SEC did not find that Amazon committed any accounting errors, but said the company “caused” Ashford to violate SEC rules and that Amazon employees' actions “facilitated Ashford.com's improper deferral of expenses.”
The move comes as the SEC is trying to crack down on the abuses of “pro forma” accounting, in which companies report figures that don't adhere to generally accepted accounting principles, said Scott Friestad, SEC assistant director of enforcement.
“We're taking the position if you're going to use pro forma numbers, you do so in a way that doesn't mislead the investing public,” he said.
The case stemmed from a dispute over a Valentine's Day promotion between the two Internet retailers. Amazon.com had issued coupons to customers to purchase items from Ashford.com. But the promotion went awry when some customers shared the coupon codes with others, leading to 8,500 of 11,500 total customers who, by Ashford.com's calculations, should not have received the discounts.
The two companies negotiated a settlement in which Amazon.com would pay Ashford.com $600,000.
In addition, Ashford.com would credit Amazon.com with bringing it 11,500 customers — to be recorded as marketing expenses for Ashford.com. In order to reduce the marketing expenses Ashford.com would have to report for acquiring the new customers, the two companies agreed to record the customers in separate quarters, instead of the quarter in which the deal took place, the SEC said.
The SEC identified two Ashford executives, Kenneth E. Kurtzman, then chief executive, and Brian E. Bergeron, former vice president of finance and then chief financial officer, as committing the violations on behalf of Ashford. The two could not be reached for comment Monday despite repeated telephone calls. Kurtzman was fined $60,000 and Bergeron $25,000.
Executives for Global Sports did not return messages seeking comment Monday.
Amazon.com spokeswoman Patty Smith said her company was not changing any of its practices, noting that Amazon had not admitted any wrongdoing.
In addition, Amazon.com announced that the SEC staff had concluded an informal inquiry into the company's accounting procedures in its corporate partnerships, and that no enforcement proceeding would be recommended. The SEC would not confirm or deny that an inquiry had taken place.
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