Former Just for Feet Directors Pay $41.5 million in Lawsuit

Five former outside directors of Just for Feet paid $41.5 million over the past six months to settle a lawsuit, in a case likely to fan fears among directors about personal liability for corporate misdeeds. The trustee for Just for Feet's creditors appointed by the court, Charles Goldstein from Protiviti, Inc., filed suit in 2001 charging the former JFF directors with conflicts of interest and misrepresentations. For example, the charges note that Randall Haines, a former JFF director, was president of Compass Bank in Birmingham, Ala., which was one of the company's primary lenders.

In September of last year, four of the five former directors – Michael Lazarus, a managing partner at Weston Presidio Capital Management; John Berg, managing partner at Dorset Capital Management, LLC; Warren Smith, a managing director at TH Lee Putnam Ventures; and Edward Croft, a founder of Croft & Bender, LLC – paid a combined $40 million to settle the trustee's case against them. Last month, Mr. Haines paid $1.5 million to settle the trustee's claims.

In a separate lawsuit settled in August, the estate of JFF’s founder and former CEO Harold Ruttenberg agreed to pay $15 million along with his son Don Ruttenberg to settle a similar lawsuit. In 2005, the younger Ruttenberg pleaded guilty to criminal charges and was sentenced to a 20-month prison term.

Deloitte & Touche, JFF's independent auditing firm, agreed to pay $24 million to settle the trustee's allegations. So far, the creditor's trustee recovered about $80 million on behalf of the Just for Feet creditors.

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Former Just for Feet Directors Pay $41.5 million in Lawsuit

Five former outside directors of Just for Feet paid $41.5 million over the past six months to settle a lawsuit, in a case likely to fan fears among directors about personal liability for corporate misdeeds. The Wall Street Journal is reporting that this case could have broader implications causing any outside director to risk personal financial responsibility for the companies they guide.

The trustee for Just for Feet's creditors appointed by the court, Charles Goldstein from Protiviti, Inc., filed suit in 2001 charging the former Just for Feet directors with conflicts of interest and misrepresentations. For example, the charges note that Randall Haines, a former JFF director, was president of Compass Bank in Birmingham, Ala. which was one of the company's primary lenders.

In September of last year, four of the five former directors – Michael Lazarus, a managing partner at Weston Presidio Capital Management; John Berg, managing partner at Dorset Capital Management, LLC; Warren Smith, a managing director at TH Lee Putnam Ventures; and Edward Croft, a founder of Croft & Bender, LLC – paid a combined $40 million to settle the trustee's case against them. Last month, Mr. Haines paid $1.5 million to settle the trustee's claims.

In a separate lawsuit settled in August, the estate of Just for Feet's founder and former CEO Harold Ruttenberg agreed to pay $15 million along with his son Don Ruttenberg to settle a similar lawsuit. In 2005, the younger Ruttenberg pleaded guilty to criminal charges and was sentenced to a 20-month prison term.

In addition, several other JFF executives were sentenced in the case. Adam Gilburne, the former president of Just for Feet stores, was sentenced to 60 months probation and a $1,000 fine and $389,000 in restitution following his May 2004 guilty plea to one count of conspiracy to commit wire fraud and securities fraud. Thomas Shine, former president of now-defunct Logo Athletic, Inc. and SVP of sports and entertainment marketing worldwide for Reebok International Ltd., was sentenced to 6 months' home detention, 3 years' probation, and a $10,000 fine.

Just for Feet's troubles began in 1999 when accounting issues began to surface. Three former executives pleaded guilty to crimes related to a scheme to overstate earnings by $8 million between 1996 and 1998. JFF filed for bankruptcy protection and its assets were auctioned off in 2000.

Deloitte & Touche, JFF's indepentent auditing firm, agreed to pay $24 million to settle the trustee's allegations. So far, the creditor's trustee recovered about $80 million on behalf of the Just for Feet creditors.

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