The Securities and Exchange Commission filed suit Tuesday alleging that three Johnston & Murphy division executives, one current and two former employees, fraudulently reported 2001 sales results at year-end.

The suit claims that the three, former J&M division president Dorothy L. Mahler, former division VP John Bracewell III, and the division's former customer care director, Patricia L. Jones, “lied” about end-of-year shipments when they were confronted with evidence of a $2.8 million revenue shortfall in the division.

Genesco asked Mahler and Bracewell to resign about two years ago. Jones remains at the company as a systems cost analyst. Genesco was not named as a defendant in the lawsuit.

In its Q3 10-Q filed last week, GCO said they have “cooperated with the commission's investigation and continues to cooperate while it seeks to resolve the matter. The company believes the resolution of this matter will not have a material adverse impact.”

The SEC said Jones told Bracewell during the final weeks of the 2001 fiscal fourth quarter that the wholesale division would not meet its budgeted sales figures. Projections showed a $2 million shortfall against a $6.8 million target for January 2001, the fiscal year’s last month.

The lawsuit charges that company sent orders to a major customer early after the customer refused the shipment and improperly booked the sales on the last day of Genesco's 2001 fiscal year.

The company had announced that they would beat analysts’ estimates and subsequently reported Q4 2001 EPS of 59 cents versus the Street’s 53 cents forecast. The stock rose more than 22% by the end of May of that year, but had fallen 38% by that November after the company forecast lower earnings and sales for fiscal 2002 and 2003.

In December 2002, Genesco said it would revise previously reported revenues in fiscal 2002 to correct an accounting problem at its Johnston & Murphy wholesale operations and would investigate “erroneous entries” for the previous fiscal year.

Genesco said the problem stemmed from the timing of shipments by its Johnston & Murphy division and involved less than 1 percent of reported revenues for fiscal year 2001.

The SEC announced late Friday that GCO had accusations of “improperly overstating quarterly earnings and maintaining internal accounting controls”. The company reportedly agreed to an SEC order to cease and desist from further violations without admitting or denying any wrongdoing.

The SEC said the company had undertaken action promptly and cooperated with the SEC staff after an internal investigation found the company improperly recognized revenue in the first three quarters of 2001 and the first two quarters of fiscal 2002.