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Just For Feet

Just For Feet. Chuck Boguslaski Martin Cullen Dean Moore. Just For Feet Overview. Single store founded in Birmingham, AL in 1977. Went public in 1994. Second largest footwear retailer in USA by 1999 with annual sales of $775m.

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Just For Feet

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  1. Just For Feet Chuck Boguslaski Martin Cullen Dean Moore

  2. Just For Feet Overview • Single store founded in Birmingham, AL in 1977. Went public in 1994. • Second largest footwear retailer in USA by 1999 with annual sales of $775m. • Combined 1997 and 1998 profits of $35m of which 25% believed fraudulent. • Distressed sale to Footstar Inc. 2000 for $72m. • $708m of public shareholder value destroyed (insiders sold $50m of stock in that time).

  3. Fraudulent A/R and Net Income 18% % Pre-Tax Income 9% 5%

  4. Pays Rogers for $1M in ads Rogers places ads with media outlets for $850K and earns the difference Pays Rogers for $1M in ads JFF retains the remainder ($1M-fixed fee) Rogers agrees to fixed fee Fixed fee < $1M – media fee “Rogers Rebate” Typical Arrangement Rogers Rebate Just For Feet $1M $1M Rebate Rogers Advertising Media fee Media fee Media Outlets

  5. Timeline 2) Backdate another $3mm for 1997 3) How about another $5.3mm? 4) Just overbook us so that we can pay ourselves back the $5.3mm 5) But just to make things look better, let’s book a false $2.27mm receivable from Adidas. 1) “Rogers Rebate” fraud scheme begins with $730k 6) Uh oh,..no cash. Let’s just file for bankruptcy

  6. Six Executives Plead Guilty • Just For Feet • Adam J. Gilburne, President Superstore Division • Steven Davis, Advertising Director • Fila USA • Jon Epstein, CEO • Adidas-Salomon AG • Timothy McCool, former U.S. Sales Director • Converse • Steven Dodge, former VP of U.S. Sales • Logo Athletic • Thomas Shine, former President

  7. Controls • Look for spikes in A/R at year/quarter end • Also, unexplained decrease in A/R turnover • Investigate large A/R transactions • Or, increases in A/R as a percent of sales • Check for back-dated transactions • Perform audit confirmation letters • But don’t assume your dealing with angels • Understand the business! • Examine advertising expenses and the associated A/R from advertisers • Why would Just For Feet record an A/R from their advertising firm???

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