Friedman's Announces Reorganization Plan
December 05, 05
Embattled jeweler Friedman's announced Friday that a U.S. bankruptcy court has confirmed its reorganization plan, setting the stage for it's emergence from chapter 11 by the end of the year. The company also announced a consent decree with the Securities and Exchange Commission (SEC) as well as a Non-Prosecution Agreement with the United States Attorney's Office, both subject to the court’s approval. The company plans to close 51 stores after Christmas.
Friedman's filed voluntary chapter 11 petitions in the U.S. Bankruptcy Court for the Southern District of Georgia, in
The filing came after months of business disruptions, which began in 2003 when the company announced that its audited financial statements for 2001 and 2002 would need to be restated and that its allowance for doubtful accounts had been understated. These issues led to liquidity problems, a complete turnover in senior management and, ultimately, filing for chapter 11 protection.
Two diamond firms top the list of Friedman's creditors: M. Fabrikant & Sons, which is owed $17 million and Rosy Blue with $10.6 million outstanding. They are followed by Design Works, which is owed $7 million, and
Friedman’s was also facing two major investigations, one by the SEC and another by the U.S. Justice Department. The investigations were initiated following a fraud lawsuit filed by Capital Factors against a company that supplied jewelry to Friedman's and others.
Friedman’s was de-listed from the New York Stock Exchange in May 2004. Just before that, its CFO Richard Cartoon resigned after only five months on the job and two directors left after just two days.
The jeweler said in a press release that during the bankruptcy proceeding, it implemented “various operational reforms and completely restructured its capital structure, with Harbert Distressed Investment Master Fund, Ltd. agreeing to invest in the Company and serve as plan sponsor in return for ownership of substantially all of the equity of the reorganized Company.”
The Consent with the SEC does not require the company to pay any fines or penalties but will result in an injunction preventing the company from any further violations of securities laws. The Non-Prosecution Agreement with the United States Attorney's Office requires, among other things, the Company to pay $2 million to the United States Postal Inspection Service's Consumer Fraud Fund and to make certain reforms to its corporate governance and financial accounting controls.
The Company also announced that in preparation for emergence from chapter 11, it plans to close 51 underperforming stores following the Christmas holiday season. “The decision to close stores is always a difficult one, but while Friedman's is in chapter 11 it has the opportunity to deal with unproductive real estate assets. Once we emerge from bankruptcy, this opportunity will no longer be available,” said CEO Sam Cusano.