Securities and Exchange Commission Issues Subpoenas to National Auto Credit
12 October 1999
Securities and Exchange Commission Issues Subpoenas to National Auto Credit
NAC supports move as current management seeks to protect all shareholders
and rebuild the company
SOLON, Ohio, Oct. 12 -- National Auto Credit, Inc.
(OTC Bulletin Board: NAKD) said today that the Securities and Exchange
Commission (SEC) recently issued subpoenas as part of its investigation
involving former management and alleged irregular accounting procedures,
deliberate underestimating of credit loss reserves and other violations of
federal securities laws.
Allen D. Rice, president of National Auto Credit (NAC), said he understood
the subpoenas were issued both to members of former top management and to two
individuals currently employed by the company. A subpoena was also issued to
the company. "We have been cooperating fully with this investigation, as well
as another investigation being conducted by the U.S. Attorney for the Northern
District of Ohio," said Rice. "It is important that we find out exactly what
occurred that led to the resignation of Deloitte & Touche and that this matter
be resolved so that the company can move forward." He added that the
subpoenas call for depositions to be conducted in the near future in
Washington, D.C.
The company said that this latest action stems from an 18-month
investigation into alleged irregular accounting practices and the resulting
financial losses that occurred while Sam Frankino served as chairman. In
January 1998, Deloitte & Touche LLP resigned as NAC's independent auditors
because, the accounting firm said, "it could no longer rely on the
representations of the then management of the company."
Mr. Frankino vacated his position at the company within a month of that
announcement. He remains majority shareholder, however, with ownership of
approximately 55 percent of the stock and recently filed a motion to expand
the board of directors in an attempt to retake control of the company.
"We hope the authorities will continue to move quickly in their
investigation of past management and take the appropriate action," said Rice.
"This investigation by the SEC appears to be consistent with the agency's
well-publicized crackdown on individuals who are suspected of manipulating
corporate earnings."
He added, "It is the board's and my primary responsibility to protect the
interests and investment of all stockholders. We certainly don't want to
return to an era in which the events that led to the financial losses and
destruction of stockholder value could be repeated."
Rice, who came to NAC from General Electric Capital Services Co. in May
1999, explained that he and the current board of directors have been working
to stabilize the company by improving budgeting and forecasting, strengthening
the credit and underwriting process, and downsizing through attrition to bring
costs under control.
In July, NAC issued restatements of previously reported results for its
fiscal years ended January 31, 1995, 1996 and 1997. At that time, it also
reported the financial results for fiscal 1998 and fiscal 1999, which included
losses of $91.7 million and $15.6 million, respectively. "If we can finally
get out from under these unfortunate events of the past, we are confident that
we can put the company back on track toward strengthened earnings and
increased stockholder value," said Rice.
A chronology of events
According to company news releases and public documents, a string of
events has occurred since Mr. Frankino was chairman of the company and even
since his forced retirement. (Note to editor: The following is only a
summary of key events; a more complete discussion of significant developments
is included in the company's latest Form 10-K filing, dated July 29, 1999.)
January 16, 1998 Deloitte & Touche LLP resigns as
independent auditors.
January 19, 1998 A Special Committee of the Board of
Directors is formed and charged with
conducting internal investigation.
January 1998 Sam Frankino temporarily vacates his
office.
February 23, 1998 The board of directors rejects Sam
Frankino's bid to be reinstated as chairman
and to name him interim CEO and COO.
March 9, 1998 Robert Bronchetti, then president and chief
executive officer, resigns. Edward
Anderson, then executive vice president,
named acting president.
March 10, 1998 The three directors who comprise the
Special Committee resign after their
recommendation that Sam Frankino resign as
chairman of the board is rejected. A second
Special Committee is formed.
March 16, 1998 The New York Stock Exchange suspends
trading of the company's common stock and
commences delisting procedures (at this
point, the stock was trading at $1.94 per
share, down from a then 52-week high of
$11.50).
March 27, 1998 Sam Frankino retires as chairman.
June 1998 Edward Anderson resigns as president.
Thomas Cross, of turnaround specialist Jay
Alix & Associates, named interim CEO.
January 1999 Director Richard Cohen named interim
president.
April 22, 1999 Sam Frankino transfers his majority votes
to another investment group, led by Ernest
Garcia, in an invalid attempt to join the
company's board of directors.
July 29, 1999 The company announces financial results for
fiscal 1998 and 1999 and the restatement of
previously issued results for fiscal 1995,
1996 and 1997.
September 1, 1999 Sam Frankino files motion to amend company
bylaws to expand the number of directors
and to appoint his designates to the board.
The Chancery Court of Delaware is still
considering the motion.
September 15, 1999 At annual meeting of stockholders, Sam
Frankino votes shares to elect himself and
his son-in-law to the board.
Reinventing NAC into a profitable niche player
"Despite these distractions and the drain on company resources, we
continue our work to take NAC into new and more profitable market segments,"
said Rice. In terms of repositioning the company for future growth, he
explained that management is exploring several opportunities, including the
Internet, which will allow the company to expand its scope from an indirect
purchaser of sub-prime automobile loans into a direct provider of a full array
of financial products. Over time, he noted, this could include secured credit
cards, consumer loans and loan-insurance products.
"We are fine tuning our business origination processes and strengthening
the collections area to provide further competitive advantages," Rice
emphasized. "It's going to take some time, but the ultimate goal is to
transform the company into a diversified provider of profitable, niche
financial products. The company is also exploring a wide range of strategic
business alternatives and diversification opportunities," he added.
National Auto Credit, Inc. is a specialized financial services company
that invests primarily in sub-prime, used-automobile consumer loans, which
take the form of installment loans collateralized by the related vehicle. The
company, through its affiliate, NAC, Inc., purchases these loans from used-
automobile dealerships that participate in the company's loan purchase
program.
National Auto Credit also performs the underwriting and collections
functions for all the loans purchased. Its operations enable these dealers to
provide financing to customers who have limited access to more traditional
consumer credit sources or might otherwise be unable to obtain financing.
This news release may include statements that constitute forward-looking
statements, usually containing the words "believe," "estimate," "project,"
"expects," or similar expressions. These statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of
1995. Forward-looking statements inherently involve risks and uncertainties
that could cause actual results to differ materially from the forward-looking
statements. By making these forward-looking statements, the company
undertakes no obligation to update these statements for revisions or changes
after the date of this document.