U.S. Securities and Exchange Commission

LITIGATION RELEASE NO. 18656 / April 5, 2004

ACCOUNTING AND AUDITING RELEASE NO. 1986 / April 5, 2004

Securities and Exchange Commission v. Lawrence O'Shaughnessey, et al. Civil Action No. 03-cv-3022 (RMB) (S.D.N.Y.)

SEC SETTLES FRAUD CASE AGAINST GARY H. KLEIN, THE FORMER VICE PRESIDENT OF FINANCE AND PRINCIPAL ACCOUNTING OFFICER FOR CANDIE'S, INC.

The Securities and Exchange Commission announced today that on March 16, 2004, the Honorable Richard M. Berman of the United States District Court for the Southern District of New York entered a final judgment against defendant Gary H. Klein of Harrison, New York. During 1998 and 1999, Klein served as the Vice President of Finance and Principal Accounting Officer for Candie's, Inc., a wholesaler of branded women's shoes.

Without admitting or denying the allegations in the Commission's complaint, Klein consented to the entry of the final judgment, which permanently enjoins him from violating the antifraud, issuer reporting, and books and records provisions of the federal securities laws.

In the complaint filed on April 30, 2003, the Commission alleged that Candie's senior management, including Klein, engaged in a fraudulent scheme to inflate artificially Candie's financial results over two fiscal years. The complaint alleged that Klein negotiated an agreement with a barter company, and that during fiscal years 1998 and 1999 Candie's fraudulently recognized approximately $1.9 million in revenue pursuant to the agreement. In addition, the complaint alleged that Klein improperly recorded a $1.6 million credit against amounts owed to Candie's Asian sourcing agent during the third quarter of fiscal year 1998, which had the effect of decreasing expenses and therefore increasing income by the same amount. Finally, the complaint alleged that Klein was aware that Candie's employed a "bill and hold" practice, and that during fiscal years 1998 and 1999 Candie's fraudulently recorded approximately $4.4 million in revenue pursuant to the "bill and hold" and other irregular shipping practices.

The final judgment permanently enjoins Klein from violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, and 13a-13. The judgment also orders Klein to pay a civil monetary penalty of $75,000 and to pay disgorgement of $39,375, representing the proceeds from his sales of Candie's securities, plus prejudgment interest of $14,472.32. Finally, the final judgment permanently bars Klein from serving as an officer or director of a public company.

The Commission also announced today that it simultaneously instituted and settled administrative proceedings against Klein. Without admitting or denying the findings, Klein consented to the entry of an Order, pursuant to Rule 102(e)(3) of the Commission's Rules of Practice, suspending him from appearing or practicing as an accountant before the Commission.

For further information about earlier developments in this matter, see Litigation Release No. 18120 and Accounting and Auditing Enforcement Release No. 1766 (April 30, 2003).

http://www.sec.gov/litigation/litreleases/lr18656.htm