The Securities and Exchange Commission has filed financial fraud charges against Bally Total Fitness Holding Corp., saying the health club chain's financial statements from at least 1997 to 2003 contained more than two dozen accounting improprieties.
The accounting problems caused Bally to overstate its originally reported year-end 2001 stockholders' equity by nearly $1.8 billion, or more than 340 percent, according to the SEC.
The commission also said in its complaint that Bally understated its originally reported 2002 net income by $92.4 million and its originally reported 2003 net loss by $90.8 million. The SEC has accused Bally of violating the antifraud, reporting, books and records, and internal control provisions of the federal securities laws.
The SEC said in its complaint that Bally fraudulently accounted for three types of revenue it received from its members: initiation fees, prepaid dues and reactivation fees. The commission also accused Bally of fraudulently accounting for membership acquisition costs.
Bally's securities traded on the New York Stock Exchange until May 2, 2007, when trading was suspended. On July 31, Bally filed for reorganization under Chapter 11 bankruptcy rules and emerged on October 1 as a privately held corporation.
Without admitting or denying the commission's allegations, Bally has consented to the entry of a court order enjoining it from violating various provisions of the Securities Act and the Securities Exchange Act, according to the SEC. In determining to accept Bally's settlement offer, the SEC considered Bally's cooperation with the SEC investigation staff and its prompt commencement of remedial action. However, the SEC investigation is continuing.
Bally emphasized that the settlement with the SEC did not involve paying any monetary penalty, and that a parallel investigation by the Justice Department had been closed without action being taken against the company. "I am pleased that the conclusion of the government investigations puts these matters behind us as we continue to execute our strategies for the long-term success of our business," said Bally chairman Don R. Kornstein in a statement.
