Just For Feet

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
4
Rogers Rebate
Typical Arrangement
Rogers Rebate

• Pays Rogers for 1M in ads
• JFF retains the remainder (1M-fixed fee)
• Rogers agrees to fixed fee
• Fixed fee lt
• 1M media fee

Just For Feet

• Pays Rogers for 1M in ads
• Rogers places ads with media outlets for 850K
  and earns the difference

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, lets
book a false 2.27mm receivable from Adidas.
1) Rogers Rebate fraud scheme begins with 730k
6) Uh oh,..no cash. Lets 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 dont 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???