This is humorous and sad at the same time! K Mart CFO employed for one quarter and charged with misleading investors...gee this is a record

Date:   8/23/2005 3:00:45 PM ( 19 y ago)

Talk About A Bad Quarter
This morning the SEC charged former KMart CFO John T. McDonald, and former CEO Chuck Conaway, with misleading investors in the months leading up to KMart's bankruptcy.

At first glance, that's a remarkable charge given that McDonald was CFO for only four months—barely more than a single quarter. As I reported at the time, he was promoted from treasurer in November 2001. Even at the time, it seemed clear that Conaway, charged with turning the ailing retailer around, had trouble finding a CFO that he liked.

Despite plenty of turnaround experience, CFO Martin Welch was dumped just a year after Conaway was brought on board, and Welch's replacement, Jeffrey N. Boyer, lasted just six months. McDonald, however, had worked for Conaway in previous years at CVS.

Given that history, the SEC's allegations, if true, suggest Conaway found former colleague McDonald more pliable than his predecessors. The SEC's litigation release charges McDonald (and Conaway) with material misrepresentations about the third quarter and nine months ended October 31, 2001—the period that ended immediately before McDonald became CFO.

Among the allegedly misleading statements in the MD&A was the attribution of a significant inventory buildup to seasonal needs. In fact, claims the SEC, "a significant portion of the inventory buildup was caused by a Kmart officer's reckless and unilateral purchase of $850 million of excess inventory." (There's no mention of who that officer was.)

If, as the charges suggest, McDonald joined Conaway in making misleading statements immediately upon assuming the finance chief role, the price he could pay for those four months on the job could be high. The SEC concludes both its press release and litigation release by thanking the United States Attorney's Office for the Eastern District of Michigan and the Federal Bureau of Investigation—an indication that criminal charges could follow.

At the time McDonald was appointed, I wrote that "McDonald's fate now hinges, no doubt, on Conaway's fate." Given the recent track records of CEO/CFO teams that got themselves into trouble, I suppose that's even more true today.

Posted by Tim Reason | August 23, 2005 10:48am | Post a Comment



 

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