Cabela’s to Pay $1M SEC Settlement

Cabela’s will pay $1 million to the U.S. Securities and Exchange Commission to settle claims that the Sidney, Nebraska, retailer’s chief financial officer, Ralph Castner, misled investors regarding the company’s profitability ratios in 2012. Castner also will pay $50,000 to the regulatory agency.

As part of the settlement, Castner and Cabela’s did not admit or deny wrongdoing.

The SEC alleged that Cabela’s failed to eliminate from its financial statements an intercompany “fee” that World’s Foremost Bank, the retailer’s wholly owned banking subsidiary that issues credit cards to customers, paid parent company Cabela’s. The fee essentially made a metric of the company’s profit margins look better than it was, the SEC said. The percentage increase in gross margins was boosted by 47 percent to 100 percent in the first through third quarters of 2012, the SEC said in a document filed Tuesday.

An example cited by the SEC, the Cabela’s earnings release in the third quarter of 2012 said the gross margins on its merchandise had increased by 1.3 percentage points to 37.2 percent. “This is the sixth consecutive quarter of merchandise margin improvement,” Cabela’s touted at the time. But the SEC said more than half that increase could be attributed to the promotions fee, which should have been stripped out of earnings.

Cabela’s also made an error in its state income taxes in the third quarter of 2012, the SEC said, resulting in a $674,000 decrease in income tax expense and the increase in the company’s third-quarter net income.

Late last week, Castner resigned from the board of Generac Holdings, a generator maker in Wisconsin, the Wall Street Journal reported. He had been a Generac director since May 2014.

Cabela’s has been under pressure to sell its bank or the entire company since late October, when activist investor Elliott Management Corp. declared an 11 percent stake in the company.

It’s the second sizable fine the company has had to pay regulators in two years: In 2014, World’s Foremost Bank was fined $1 million by the Federal Deposit Insurance Corp. and ordered to pay cardholders restitution for “deceptive and unfair acts.” The bank in 2010 also agreed to pay $250,000 to the FDIC and $10.1 million in restitution to settle other complaints of unfair and deceptive practices.

In other news, Cabela’s Incorporated was announced as one of The Harris Poll’s 2016 Brands of the Year. More than 3,800 brands were evaluated by more than 97,000 U.S. consumers, and Cabela’s was the only sporting-goods retailer named as a “Brand of the Year” recipient. This marks the third time in the last four years that Cabela’s has received this ranking from consumers.

Apparently, accurate filings is not one of the criteria.