The Securities and Exchange Commission today announced that Fort Worth, Texas, specialty retailer Tandy Leather Factory Inc. and its former chief executive officer Shannon Greene have agreed to settle charges for accounting, reporting, and control failures that led to a multi-year restatement of the company’s financial statements.
According to the SEC’s order, Tandy’s inventory tracking system was incapable of supporting its disclosed inventory accounting methodology because it did not properly maintain historical cost information for its inventory.
Data from this system populated Tandy’s financial statements with inaccurate financial information, which in turn impacted the company’s calculations for, among other things, inventory, net income, and gross profit for years. Greene and others at the company were aware of the inventory tracking system’s limitations, but did not adequately remedy them, and failed to design and maintain proper accounting controls to reasonably ensure that Tandy’s transactions were recorded in accordance with generally accepted accounting principles.
Tandy also failed to properly design, maintain, and evaluate its disclosure controls and procedures (DCP) and internal control over financial reporting (ICFR), and Greene failed to properly assess and evaluate the effectiveness of the same.
As a result, Greene inaccurately certified that Tandy’s DCP and ICFR were properly designed and effective. On June 22, 2021, Tandy issued restated financial statements for fiscal years 2017 and 2018, each quarter in fiscal year 2018, and the first quarter of fiscal year 2019.
“Tandy’s inventory tracking system and related controls were critical to both its business and the information it provided investors, yet they were wholly insufficient,” said David Peavler, Director of the SEC’s Fort Worth Regional Office. “Properly functioning disclosure controls and ICFR are critical to reliable financial reporting, and we will hold companies and their responsible executives accountable for serious control failures like this.”
The SEC’s order finds that Tandy violated, and Greene caused Tandy’s violations of, the reporting, record-keeping, and internal controls provisions of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934 and Rules 12b-20, 13a-1, 13a-13 and 13a-15(a)-(c) thereunder. Greene also is found to have violated the certification provisions of Exchange Act Rule 13a-14.
Without admitting or denying the order’s findings, Tandy and Greene each consented to cease and desist from further committing or causing these violations and pay civil money penalties of $200,000 and $25,000, respectively. In accepting Tandy’s settlement offer, the SEC took into account remedial actions the company took promptly after learning of the issues detailed in the SEC’s order.
The SEC’s investigation was conducted by Rebecca Fike and Melvin Warren of the Fort Worth Regional Office under supervision by Scott Mascianica and Eric Werner.