A U.S. district judge on Monday sentenced former Just for Feet EVP Don Ruttenberg to spend 20 months in prison and pay a $50,000 fine. Ruttenberg, son of JFF founder Harold Ruttenberg, received the sentence after pleading guilty in April 2004 to conspiracy to commit securities fraud, wire fraud, and submitting and making false statements to the retailers auditors, Deloitte & Touche. Ruttenberg was singled out as the central figure in efforts to pressure a number of vendors to provide false letters of confirmation for the company's audit.
The sentence is the toughest penalty received in the case that has seen a number of former JFF and vendor execs plead guilty to charges related to the retailers 1999 bankruptcy. Ruttenberg faced 30 to 37 months in federal prison and a fine ranging from $6,000 to $1 million. He will also pay a $200 court fee and serve two years of probation following his release. He must report on June 30 to serve his prison term.
According to details provided in a suit filed by the U.S. Securities and Exchange Commission, Ruttenberg distributed an “audit confirmation letter” to numerous vendors as part of the process of JFFs annual audit conducted by Deloite & Touche from February to April 1999. As part of the process, D&T requested that JFFs vendors to confirm amounts owed to JFF.
In a release issued in April of last year, the U.S. Attorneys office said that “Ruttenberg caused the company's accounting department to record over $5 million in fictitious accounts receivable allegedly due to JFF from various vendors as of January 30, 1999”, causing JFF to overstate income by the same amount.
As part of the scheme outlined in the SEC suit, Ruttenberg allegedly sent the various vendors an audit confirmation letter, requesting that each confirm to Deloitte & Touche that they actually owed JFF certain amounts “for advertising that ran or merchandise sold prior to January 30, 1999”. The requests were termed “Fictitious Co-Op Revenue” claims and “Fictitious Booth Income” claims by the SEC.
Those charged so far on the vendor side appear to have sent the confirmation letter directly back to the auditors, which have resulted in four guilty pleas by vendor executives so far, while one unnamed — and uncharged — executive sent the letter back to JFF.
According the SEC suit, all parties understood that JFFs “receipt of advertising co-op revenue was not guaranteed”, pointing to our industrys most common practices for accruing, allocating and crediting for co-op dollars based on purchases made by the retailer.
During fiscal year 1998 and the first quarter of 1999, Ruttenberg allegedly had JFFs accounting department book “co-op receivables when he knew or was extremely reckless in not knowing that the vendors in question did not owe these funds” to JFF at any time during the affected period.
The suit further contends that Ruttenberg instructed the accounting staff “on how to book journal entries relating to these receivables”. He then allegedly had vendors “provide documents used to confirm, falsely, approximately $19.4 million in co-op receivables recorded for fiscal year 1998 that Just for Feet had not in fact earned during the fiscal year”, according to the SEC suit.
The SEC suit names specific actions Ruttenberg took to persuade representatives of adidas America, Fila USA, and Nike, Inc. to sign the confirmation letters, or $6.2 million of the amount they alleged he knew to be false.
