FORMER FILA USA CEO AGREES TO PLEAD GUILTY TO CONSPIRACY TO MAKE FALSE STATEMENTS TO AUDITORS OF JUST FOR FEET, INC.

The following press release was published by the US Department of Justice on Dec. 18, 2003. It is reproduced in full below.

FOR IMMEDIATE RELEASE THURSDAY, DECEMBER 18, 2003 WWW.USDOJ.GOV CRM (202) 514-2008 TDD (202) 514-1888 WASHINGTON, D.C. - Deputy Attorney General James B. Comey, Assistant Attorney General Christopher A. Wray of the Criminal Division, U.S. Attorney Alice H. Martin of the Northern District of Alabama and FBI Special Agent in Charge Carmen S. Adams announced today that Jonathan G. Epstein, former President and CEO of Fila USA, an athletic footwear and apparel company, has agreed to plead guilty to conspiracy to submit false statements to the auditors of Just For Feet, Inc. (JFF) and to falsify the books and records of JFF, in violation of 18 U.S.C. Section 371.

Epstein, 48, of St. Louis, Missouri, was charged in a one-count criminal information filed today in the U.S. District Court in Birmingham, Alabama. Epstein has agreed to plead guilty to the charge and cooperate with the federal government’s ongoing investigation into JFF’s finances. A hearing on Epstein’s plea will be scheduled at a later date. The conspiracy charge carries a maximum penalty of five years in prison and a fine of $250,000.

“Experience has taught us that corporate corruption extends far beyond those who actually cook the books, to those who facilitate the fraud,” stated Deputy Attorney General James B. Comey, chairman of the President’s Corporate Fraud Task Force. “We will continue to go after those who allow the fraud to continue, whether it’s company executives or others from outside the company who assist them.” At all times relevant to the offense to which he has agreed to plead guilty, Epstein was the national President and CEO of Fila USA, a wholly owned subsidiary of Fila Holding S.p.A., an Italian company. In June 2003, Fila USA was purchased by Sport Brands International. Epstein served as president and CEO of SBI from June 2003 until he announced his resignation earlier this month.

Just for Feet, Inc., was a publicly traded corporation with headquarters in Shelby County, Alabama. The company was founded in 1977 with a single store in Birmingham. By 1999 it had grown to be the second largest athletic shoe retailer in the United States, with locations in 30 states and annual sales of approximately $775 million. The company filed for bankruptcy in 1999.

According to the criminal information, in or around February 1999 and continuing through on or about Apr. 23, 1999, Deloitte & Touche performed its annual audit of JFF’s financial statements for the fiscal year ending Jan. 30, 1999. As part of the audit process involving JFF’s accounts receivable, Deloitte & Touche requested certain vendors to provide written, independent confirmation of the amounts they owed JFF. This was done in the form of an “audit confirmation letter.” The criminal information alleges that during the course of JFF’s annual audit, an executive vice president of JFF caused the company’s accounting department to record an additional $1.4 million in fictitious accounts receivable allegedly due to JFF from Fila as of Jan. 30, 1999. This had the result of causing JFF’s income to be overstated by approximately $1.4 million.

According to the charges, the executive vice president sent Epstein an audit confirmation letter, requesting that Epstein, on behalf of Fila, confirm to Deloitte & Touche that Fila actually owed JFF approximately $1.4 million “for advertising that ran or merchandise sold prior to Jan. 30, 1999.” Epstein, knowing that the information contained in the audit confirmation letter was false, and that Fila did not, in fact, owe JFF approximately $1.4 million, signed it and sent it to Deloitte & Touche. Subsequently, Deloitte & Touche included the false financial information when preparing JFF’s annual financial reports for public filing with the Securities and Exchange Commission. As a result, JFF’s earnings for the fiscal year ending Jan. 30, 1999, as stated in its annual audited financial statement and SEC filings, were overstated by at least approximately $1.4 million, thereby defrauding the shareholders of JFF.

“As the president and CEO of Fila USA, Mr. Epstein clearly crossed the legal line and entered into this conspiracy to submit false statements to the auditors,” said U.S. Attorney Alice H. Martin. “In doing so, he undermined the integrity of the independent auditor process and deprived the investing public of true financial facts relating to Just For Feet, Inc.” Carmen S. Adams, Special Agent in Charge, FBI-Birmingham, added: “The prosecution of Mr. Epstein, in concert with that of former JFF President Adam Gilburne and former adidas executive, Timothy McCool, makes it clear that the FBI is committed to investigating everyone involved in corporate malfeasance. The FBI will aggressively pursue anyone, inside the corporation as well as those outside, who help corporate officials perpetuate a fraud on the public.” The JFF investigation remains active and ongoing. In April 2003, former JFF President Adam Gilburne was charged with, and pleaded guilty to, conspiracy to commit wire and securities fraud. In August 2003, Timothy McCool, the National Sales Director of adidas America, pleaded guilty to conspiracy to submit false statements to the auditors of a publicly traded company and to cause false entries to be made in the books and records of JFF.

The investigation is being conducted by the FBI-Birmingham Field Office, with assistance from the SEC, Atlanta District-Enforcement Division. The prosecution is being handled jointly by the United States Attorney’s Office and the Fraud Section of the Criminal Division of the Department of Justice in Washington, D.C. The prosecution is being overseen by the President’s Corporate Fraud Task Force, headed by Deputy Attorney General James B. Comey. 03-705

Source: US Department of Justice