Whitehall Settles Capital Factors Lawsuit, Dodges Federal Case

Whitehall Jewellers, Inc, which has been under a federal investigation, was told by the U.S. Attorney’s Office it will not face charges relating to the Capital Factors lawsuit. Whitehall said it has also reached a settlement in the Capital Factors actions currently pending in New York State Supreme Court.

The jewelry retailer was under a U.S. Attorney’s criminal investigation since October 2003 and was named in the Capital Factors suit in August of that year for fraud. The company is still being investigated by the Security Exchange Commission on matters relating to Capital Factors.

“The non-prosecution agreement entered into today brings closure to the U.S. Attorney’s Office investigation of the company,” Whitehall said in a statement.

Under the agreement, the company has committed to pay restitution to Capital Factors in the amount of $10.8 million, and to pay the government $350,000. In addition, it said it will continue to cooperate with the U.S. Attorney’s Office investigation as requested.

So long as the company fulfills its obligations under the agreement, the U.S. Attorney’s Office has agreed not to prosecute it for any matters relating to Cosmopolitan Gem Corp. and Colorcast Inc.’s scheme to defraud Capital Factors or any other party.

Whitehall’s settlement agreements with Capital Factors, International Diamonds and its affiliate Astra Diamonds Manufacturers, ends the lawsuit brought against it stemming from the consolidated Capital Factors actions in return of a payment to Capital Factors of the $10.8 million ($8.2 million payable immediately, the remaining portion payable by December 23, 2004) and to International/Astra of $1.93 million (payable immediately).

In addition, as part of the settlements, Capital Factors and International/Astra agreed to release Whitehall from any claims related to consignment goods and proceeds it received from Ultimo, once the goods and proceeds have been paid into court or placed in escrow.

“Throughout the course of the U.S. Attorney’s Office and SEC investigations, Whitehall has implemented a number of measures designed to address the issues raised by the Capital Factors related matters,” the company said in a statement.

“Since October 2003, the Company has: (1) terminated the employment of all personnel it determined had engaged in misconduct; (2) hired an Internal Audit Director and authorized the hiring of a General Counsel; (3) committed to hiring a President and COO with significant public company experience; (4) taken measures to increase the Board’s independence; (5) instituted a comprehensive compliance program; and (6) implemented numerous policies, procedures, and processes designed to strengthen the Company’s systems of internal controls.”