Source: https://www.sec.gov/litigation/complaints/comp18139.htm
Timestamp: 2019-04-19 17:20:11+00:00

Document:
1. From at least 1997 through its 1999 demise, Just for Feet, Inc. ("Just for Feet"), a former national retailer of athletic and outdoor footwear and apparel, substantially overstated its assets and income through the use of bogus receivables from Just for Feet's outside advertising agency. Such a receivable of $3 million comprised 8.7% of Just for Feet's $34.2 million in reported pre-tax income in its Form 10-K annual report for fiscal 1997. A second bogus receivable of $5.3 million comprised 12.3% of Just for Feet's $43.3 million in reported pre-tax income in its Form 10-K annual report for fiscal 1998.
2. Defendant Adam J. Gilburne ("Gilburne"), as an officer of Just for Feet, made or caused to be made false entries in Just for Feet's books and records necessary to artificially inflate Just for Feet's earnings.
3. Gilburne has engaged in, and unless restrained and enjoined by this Court, will continue to engage in, acts and practices which constitute and will constitute violations of Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. §§ 78j(b) and 78m(b)(5)] and Rules 10b-5 and 13b2-1 [17 C.F.R. §§ 240.10b-5 and 240.13b2-1], and acts and practices that aided and abetted Just for Feet's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act [15 U.S.C. §§ 78m(a) and 78m(b)(2)(A)] and Rules 12b-20, 13a-1 and 13a-13 thereunder [17 C.F.R. §§ 240.12b-20, 240.13a-1 and 240.13a-13].
4. The Commission brings this action pursuant to Sections 21(d), 21(e) and 21A of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e) and 78u-1] to enjoin Gilburne from engaging in transactions, acts, practices and courses of business alleged in this complaint, and transactions, acts, practices, and courses of business of similar purport and object, for a civil money penalty and an officer and director bar.
5. This Court has jurisdiction of this action pursuant to Sections 21(d), 21(e) and 27 of the Exchange Act [15 U.S.C. §§ 78u(d), 78u(e) and 78aa]. Furthermore, certain of the actions set forth herein occurred within the Northern District of Alabama.
6. Gilburne, directly and indirectly, has made use of the mails, the means and instruments of transportation and communication in interstate commerce, and the means and instrumentalities of interstate commerce, in connection with the transactions, acts, practices and courses of business alleged in this Complaint.
7. Venue lies in this Court pursuant to Section 27 of the Exchange Act [15 U.S.C. § 78aa] because the offer and sale of Just for Feet's securities during the relevant period occurred within this district.
8. Adam J. Gilburne, 40, of Paradise Valley, Arizona, previously owned and operated a Just for Feet franchised superstore before joining Just for Feet as a Vice President-Store Operations in March 1994. He was promoted Executive Vice President and the President of the Superstore Division in August 1997. He reported directly to Just for Feet's Chief Executive Officer ("CEO"). Gilburne resigned from all positions effective May 31, 1999.
9. Just for Feet, Inc., a Delaware corporation based during the relevant period in Birmingham, Alabama, was a national retailer of athletic and outdoor footwear and apparel. Just for Feet went public in 1994. Its securities were registered with the Commission pursuant to Section 12(g) of the Securities Act of 1933 [15 U.S.C. § 78l] or and traded on the National Association of Securities Dealers Automated Quotation System under the symbol "FEET." Despite presenting a favorable financial picture in its fiscal 1998 Form 10-K filed on April 30, 1999, Just for Feet filed for protection in November of 1999 under Chapter 11 of the Bankruptcy Code. This was converted to a Chapter 7 liquidation proceeding in 2000.
10. Just for Feet's fiscal year ran from February 1 through January 31. In January 1999, however, Just for Feet changed the ending date for fiscal 1998 to January 30.
11. Rogers Advertising was an advertising agency located in Birmingham, Alabama that acted as Just for Feet's outside advertising agency during the events described in this Complaint. Rogers Advertising placed Just for Feet's advertising with various media outlets such as radio and television. As was common in the advertising industry, Rogers Advertising received a 15% discount when placing advertisements for Just for Feet. For example, if Rogers Advertising placed $1 million worth of advertisements in a month, the media outlets would expect Rogers Advertising to pay $850,000. Rogers Advertising billed Just for Feet for the entire $1 million and kept the 15% difference as a commission.
12. In December 1996, Just for Feet's CEO and the President of Rogers Advertising (the "Rogers Advertising President") met and agreed that in the upcoming fiscal 1997 year, Rogers Advertising would retain a fixed commission of $135,000 per month and would return any remaining amounts to Just for Feet as a "rebate." They agreed that the total amount of this rebate for fiscal 1997 would be $730,000. This arrangement became known as the "Rogers Rebate."
13. Although the $730,000 rebate was actually for fiscal 1997, Just for Feet recorded this amount as a receivable and as income in fiscal 1996, thereby overstating its assets and income by this amount in its Form 10-K annual report for fiscal 1996 filed with the Commission in April 1997.
14. In or around December 1997, the CEO met with Gilburne and explained to him that he had devised a way to increase Just for Feet's income for fiscal 1997 by $3 million. The CEO then further cautioned Gilburne that if anyone should ask about the Rogers Rebate, Gilburne should falsely say that the Rebate was based on business already performed by Rogers Advertising in 1997.
15. In or around January 1998, the CEO, Gilburne and others caused a false credit memorandum for $3 million from Rogers Advertising to be entered into Just for Feet's books and records.
16. Although the $3 million rebate was actually for fiscal 1998, Just for Feet recorded this amount as a receivable and as income in fiscal 1997, thereby overstating its assets and income by this amount in its Form 10-K annual report for fiscal 1997 filed with the Commission in April 1998. Just for Feet also overstated its assets on its Form 10-Q quarterly reports filed with the Commission for the first, second and third quarters of 1998 through the recognition of this receivable.
17. On or about December 15, 1998, Gilburne agreed with the CEO and the Rogers Advertising President that Rogers Advertising would grant Just for Feet a rebate of $5.3 million for fiscal 1999.
18. Although the $5.3 million rebate was actually for fiscal 1999, Just for Feet recorded this amount as a receivable and as income in fiscal 1998, thereby overstating its assets and income by this amount in its Form 10-K annual report for fiscal 1998 filed with the Commission in April 1999. Just for Feet also overstated its assets on its Form 10-Q quarterly reports filed with the Commission for the first and second quarters of 1999 through the recognition of this receivable.
19. In or around February 1999, knowing that Just for Feet would not spend enough for advertising that year to generate sufficient income from advertising discounts for Rogers Advertising to pay down the $5.3 million receivable purportedly owed to Just for Feet, Gilburne, the CEO, the President of Rogers Advertising and others discussed how Just for Feet could provide Rogers Advertising with money to pay down the $5.3 million receivable which had previously been booked by Just for Feet.
20. In or around February 1999, the CEO, the President of Rogers Advertising and others agreed that, beginning in the second quarter of 1999, Rogers Advertising would be allowed to over-bill Just for Feet $250,000 per month through the remainder of 1999 in order to provide Rogers Advertising with money to pay down the $5.3 million receivable.
21. In or around May 1999, Gilburne spoke with the Rogers Advertising President about over-billing Just for Feet by $250,000 to give Rogers Advertising enough money to make a partial repayment of the balance of the $5.3 million receivable Rogers Advertising purportedly owed to Just for Feet.
22. Paragraphs 1 through 21 are hereby realleged and are incorporated herein by reference.
c) engaged in acts, practices, and courses of business which would and did operate as a fraud and deceit upon the purchasers of such securities, all as more particularly described in the paragraphs above.
24. Gilburne knowingly, intentionally, and/or with severe recklessness engaged in the aforementioned devices, schemes and artifices to defraud, made untrue statements of material facts and omitted to state material facts, and engaged in fraudulent acts, practices and courses of business. In engaging in such conduct, Gilburne acted with scienter, that is, with an intent to deceive, manipulate or defraud or with a severe reckless disregard for the truth.
25. By reason of the foregoing, Gilburne, directly and indirectly, has violated and, unless enjoined, will continue to violate Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5].
26. Paragraphs 1 through 21 are hereby realleged and are incorporated herein by reference.
27. Gilburne, from December 1997 through May 1999, aided and abetted Just for Feet's violations of Section 13(a) [15 U.S.C. § 78m(a)] of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder [17 C.F.R. §§ 240.12-20, 240.13a-1 and 240.13a-13], which occurred when Just for Feet filed annual and periodic reports that contained financial statements that were not prepared in conformity with GAAP and contained material misstatements. Through the conduct described in the above paragraphs, Gilburne knowingly or with severe recklessness substantially assisted Just for Feet's violations of this section and rules.
28. Paragraphs 1 through 21 are hereby realleged and are incorporated herein by reference.
29. Gilburne, from December 1997 through May 1999, aided and abetted Just For Feet's violations of Section 13(b)(2)(A) of the Exchange Act, which occurred when Just for Feet failed to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflected the transactions and dispositions of Just for Feet's assets. Through the conduct described in the above paragraphs, Gilburne knowingly or with severe recklessness substantially assisted Just for Feet's violations of these sections.
30. Paragraphs 1 through 21 are hereby realleged and are incorporated herein by reference.
31. Section 13(b)(5) of the Exchange Act prohibits any person from knowingly circumventing or knowingly failing to implement a system of internal accounting controls or knowingly falsifying any book, record, or account required by Section 13(b)(2)(A) of the Exchange Act. Rule 13b2-1 prohibits any person from directly or indirectly falsifying or causing the falsification of any such books, records or accounts. Through the conduct described above, Gilburne violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1.
Make findings of fact and conclusions of law in accordance with Rule 52 of the Federal Rules of Civil Procedure.
d. from aiding and abetting violations of Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. § 78m(b)(2)(A)].
Issue an Order requiring Gilburne, pursuant to Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3) ] to pay civil monetary penalties.
Issue an Order pursuant to Section 21(d)(2) of the Exchange Act [15 U.S.C.§ 78u(d)(2)] permanently prohibiting Gilburne from acting as an officer or director of any issuer that has a class of securities registered with the Commission pursuant to Section 12 of the Exchange Act [15 U.S.C. § 78l] or that is required to file reports with the Commission pursuant to Section 15(d) of the Exchange Act [15 U.S.C.§ 78o(d)].
Issue an Order that retains jurisdiction over this action in order to implement and carry out the terms of all orders and decrees that may have been entered or to entertain any suitable application or motion by the Commission for additional relief within the jurisdiction of this Court.

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