Question:
In May 2001, the Securities and Exchange Commission sued the former top executives at Sunbeam,
charging the group with financial reporting fraud that allegedly cost investors billions in losses. Sunbeam
Corporation is a recognized designer, manufacturer, and marketer of household and leisure products,
including Coleman, Eastpak, First Alert, Grillmaster, Mixmaster, Mr. Coffee, Oster, Powermate, and
Campingaz. In the mid-1990s, Sunbeam needed help: its profits had declined by over 80% percent, and in
1996, its stock price was down over 50% from its high. To the rescue: Albert Dunlap, also known as
“Chainsaw Al” based on his reputation as a ruthless executive known for his ability to restructure and turn
around troubled companies, largely by eliminating jobs.
The strategy appeared to work. In 1997, Sunbeam’s revenues had risen by 18 percent. However, in April
1998, the brokerage firm of Paine Webber downgraded Sunbeam’s stock recommendation. Why the
downgrade? Paine Webber had noticed unusually high accounts receivable, massive increases in sales of
electric blankets in the third quarter
1997, which usually sell best in the fourth quarter, as well as unusually high sales of barbeque grills for
the fourth quarter.
Soon after, Sunbeam announced a first quarter loss of $44.6 million, and Sunbeam’s stock price fell 25
percent.
It eventually came to light that Dunlap and Sunbeam had been using a “bill and hold” strategy with retail
buyers.
This involved selling products at large discounts to retailers before they normally would buy and then
holding the products in third-party warehouses, with delivery at a later date.
Many felt Sunbeam had deceived shareholders by artificially inflating earnings and the company’s stock
price.
A class-action lawsuit followed, alleging that Sunbeam and Dunlap violated federal securities laws,
suggesting
In May 2001, the Securities and Exchange Commission sued the former top executives at Sunbeam,
charging the group with financial reporting fraud that allegedly cost investors billions in losses. Sunbeam
Corporation is a recognized designer, manufacturer, and marketer of household and leisure products,
including Coleman, Eastpak, First Alert, Grillmaster, Mixmaster, Mr. Coffee, Oster, Powermate, and
Campingaz. In the mid-1990s, Sunbeam needed help: its profits had declined by over 80% percent, and in
1996, its stock price was down over 50% from its high. To the rescue: Albert Dunlap, also known as
“Chainsaw Al” based on his reputation as a ruthless executive known for his ability to restructure and turn
around troubled companies, largely by eliminating jobs.
The strategy appeared to work. In 1997, Sunbeam’s revenues had risen by 18 percent. However, in April
1998, the brokerage firm of Paine Webber downgraded Sunbeam’s stock recommendation. Why the
downgrade? Paine Webber had noticed unusually high accounts receivable, massive increases in sales of
electric blankets in the third quarter
1997, which usually sell best in the fourth quarter, as well as unusually high sales of barbeque grills for
the fourth quarter.
Soon after, Sunbeam announced a first quarter loss of $44.6 million, and Sunbeam’s stock price fell 25
percent.
It eventually came to light that Dunlap and Sunbeam had been using a “bill and hold” strategy with retail
buyers.
This involved selling products at large discounts to retailers before they normally would buy and then
holding the products in third-party warehouses, with delivery at a later date.
Many felt Sunbeam had deceived shareholders by artificially inflating earnings and the company’s stock
price.
A class-action lawsuit followed, alleging that Sunbeam and Dunlap violated federal securities laws,
suggesting
