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Bally faces SEC financial fraud charges amid allegations of $1.98 billion in overstatements
By Caroline Salls
Pittsburgh, Feb. 28 - The Securities and Exchange Commission has filed financial fraud charges against Bally Total Fitness Holding Corp. amid allegations that Bally's 1997 to 2003 financial statements contained more than two dozen accounting improprieties, causing the company to overstate its year-end 2001 stockholders' equity by nearly $1.8 billion, or more than 340%, according to an SEC news release.
The SEC's complaint also alleged that Bally understated its 2002 net loss by $92.4 million, or 9341%, and understated its 2003 net loss by $90.8 million, or 845%.
As a result, the commission alleged that Bally violated the antifraud, reporting, books and records, and internal control provisions of the federal securities laws.
According to the SEC's complaint, Bally fraudulently accounted for three types of revenue it received from its members: initiation fees, prepaid dues and reactivation fees, as well as its membership acquisition costs.
The release said these frauds account for $1.2 billion of the $1.8 billion overstatement of Bally's originally reported year-end 2001 stockholders' equity.
In addition, the SEC is alleging that Bally's accounting for more than 20 other revenue or expense items failed to conform to Generally Accepted Accounting Principles and account for the remaining $600 million of the $1.8 billion overstatement of Bally's originally reported year-end 2001 stockholders' equity.
The complaint was filed in the U.S. District Court for the District of Columbia, and the SEC said Bally has consented to a court order enjoining it from violating the specific securities law violations the commission cited in its complaint.
The commission said its investigation is continuing.
Bally, a Chicago-based fitness center operator, emerged from bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York in October. Its Chapter 11 case number is 07-12395.
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