8Ed.sol1.02

8Ed.sol1.02 - CASE 1.2 JUST FOR FEET INC Synopsis Harold Ruttenberg immigrated to the United States from South Africa in 1976 In his early thirties

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JUST FOR FEET, INC. Synopsis Harold Ruttenberg immigrated to the United States from South Africa in 1976. In his early thirties at the time and the father of three small children, Ruttenberg wanted to escape the political and economic troubles brewing in South Africa. Over the previous decade, Ruttenberg had created a successful retail business in his home country. However, South Africa’s emigration laws allowed the young businessmen to take only $30,000 of his considerable net worth with him to the United States. Not to be deterred, the industrious Ruttenberg quickly resurrected his business career in his new homeland. In 1988, Ruttenberg sold his existing business and founded Just for Feet, Inc., a retail “superstore” that sold principally athletic shoes. Over the next decade, Just for Feet opened more than 300 retail outlets across the United States and became the second largest retailer of athletic shoes in the nation. Ruttenberg took his company public in 1994. During the late 1990s, Just for Feet’s common stock was one of the “hottest” securities on Wall Street, thanks to the company’s impressive operating results, which included twenty-one straight quarterly increases in same-store sales. Those operating results were even more impressive when one considers the fact that the athletic shoe “sub-industry” was suffering from severe over-saturation during that time frame. Just for Feet shocked Wall Street in mid-1999 by announcing that it would post its first-ever quarterly loss and that it might default on the interest payment that was coming due on its outstanding bonds. The potential default was particularly stunning since the company had just sold the bonds two months earlier. When Harold Ruttenberg resigned as the company’s CEO in July 1999, Just for Feet’s board hired a corporate turnaround specialist. Unfortunately, there was no turnaround in the company’s future. In November 1999, the company filed for bankruptcy and was eventually liquidated. Federal and state law enforcement authorities who investigated Just for Feet’s sudden collapse discovered that management had orchestrated a large scale accounting fraud to conceal the company’s deteriorating financial condition in the late 1990s. The principal features of the fraud included improper accounting for so-called vendor allowances, the company’s refusal to provide an appropriate reserve for inventory obsolescence, and the recording of millions of dollars of fictitious “booth” income. Eventually, regulatory authorities turned their attention to Just for Feet’s independent audit firm, Deloitte & Touche. Investigations of Deloitte’s audits of Just for Feet revealed serious deficiencies in those audits that resulted in the prominent audit firm being sanctioned by the SEC and facing numerous civil lawsuits. Just For Feet, Inc.--Key Facts
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This note was uploaded on 09/15/2011 for the course ACT 442 taught by Professor Nancy during the Spring '11 term at Ohio State.

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8Ed.sol1.02 - CASE 1.2 JUST FOR FEET INC Synopsis Harold Ruttenberg immigrated to the United States from South Africa in 1976 In his early thirties

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