EXHIBIT 10.1
U.S. DEPARTMENT OF JUSTICE
United States Attorney
Eastern District of New York
EC: SLL One Pierrepont Plaza
F#2003R01925 Brooklyn, New York 11201
Mailing Address: 000 Xxxxxxxxxx Xxxxxx
Xxxxxxxx, Xxx Xxxx 00000
September 28, 2004
Xxxxx X. Xxxxxxx, Esq.
Xxxxxx X. Xxxxxxxx, Esq.
Xxxxxxxxx & Xxxxxxxx LLP
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Re: Whitehall Jewellers, Inc.
Dear Messrs. Xxxxxxx and Xxxxxxxx:
This letter sets forth the agreement between the United States
Attorney's Office for the Eastern District of New York (the "Office") and
Whitehall Jewellers, Inc. ("Whitehall").
1. The Office is conducting a criminal investigation to
determine, among other things, whether any Whitehall officers or employees
conspired with and/or aided and abetted Cosmopolitan Gem Inc., Colorcast
Corporation, or their principal, Xxxxxx Xxxxxxxxxx (collectively
"Cosmopolitan"), in defrauding their lender, Capital Factors, Inc. ("Capital").
During the course of the investigation the Office has determined that, prior to
June 2003, one or more Whitehall officers and employees furthered Cosmopolitan's
fraud through, among other things, knowingly providing false and misleading
information to, and withholding information from, Capital about Xxxxxxxxx's
accounts payable obligations to Cosmopolitan. Further, the Office has determined
that, prior to June 2003, one or more Whitehall officers and employees were
aware that Cosmopolitan was making false and misleading statements to Capital
about Whitehall's accounts payable obligations to Capital. These misstatements
led Capital to believe that Xxxxxxxxx owed Cosmopolitan
2
substantially more money than it did and to continue to advance funds to
Cosmopolitan.
2. Xxxxxxxxx acknowledges that, prior to June 2003, one or more
Whitehall officers and employees violated federal criminal law by conspiring
with Cosmopolitan and aiding and abetting Cosmopolitan's fraud. Xxxxxxxxx
accepts responsibility for the conduct of any of its officers and employees
giving rise to any violation related to Cosmopolitan's defrauding of Capital.
Whitehall does not endorse, ratify or condone criminal conduct and, as set forth
below, has taken steps to prevent such conduct from occurring in the future.
3. Based upon Xxxxxxxxx's acceptance of responsibility in the
preceding paragraph, its willingness to cooperate fully with the Office, its
efforts to identify and terminate any culpable employees and deter future
wrongdoing, make restitution to Capital and the adoption of various compliance
and corporate governance measures set forth below, this Office will not
criminally prosecute Whitehall for any crimes (except for possible criminal tax
violations, if any, as to which this Office cannot and does not make any
agreement) related to any statements, acts, or omissions by Whitehall, or its
current or former officers or employees, which relate to or were in furtherance
of Cosmopolitan's scheme to defraud Capital Factors or any other party, which
scheme was in existence from in or about and between 1999 until in or about
December 2003. This Agreement does not provide any protection against
prosecution for any crimes except as set forth above, and applies only to
Whitehall and not to any other individuals or entities, including, but not
limited to, any current or former officer, director or employee of Whitehall.
4. Whitehall shall: (a) continue to truthfully and completely
disclose all information with respect to the activities of Whitehall, and its
respective officers, directors and employees, concerning all matters about which
the Office inquires of them, which information can be used for any purpose; (b)
continue to cooperate fully with the Office, the United States Postal Inspection
Service, and any other federal law enforcement or regulatory agency designated
by the Office; (c) continue to provide voluntarily to the Office, upon request,
any non-privileged document, record or other tangible evidence relating to
matters about which the Office or other designated law enforcement or regulatory
agency inquires of them; (d) provide to the Office and to any designated law
enforcement or regulatory agency unlimited
3
access to Whitehall facilities, documents, and employees; and (e) commit, or
attempt to commit, no crimes whatsoever.
5. Whitehall has implemented or will implement all of the
remedial and corrective actions described in your letter dated September 28,
2004 (the "Letter"). Specifically, Whitehall will implement and maintain the
compliance program set forth in your Letter, which includes, but is not limited
to, the adoption of a code of conduct, the appointment of a chief compliance
officer and the hiring of an Internal Audit Director, the formation of a
compliance committee, the creation of a reporting hotline, whistleblower
protection, compliance training and other corporate governance changes, as
outlined in your Letter.
6. Further, as indicated in your Letter, the Company has
implemented certain new or modified policies, including, but not limited to: a
revised gift policy; a prohibition of "on account" payments; an improved vendor
approval process; an improved vendor reconciliation process; additional
disbursement and cash management controls; formalized procedures for
communicating with factors; additional buyout, purchase commitment, and
accelerated payment approval procedures; and controls on the assignment of new
PLU numbers to existing merchandise. It is understood that Whitehall shall
continue to operate its compliance program, as described in your Letter, and
shall continue to follow those new or modified policies (as amended from time to
time with prompt notification of any material change to the Audit Committee or
full Board of Directors) which are listed above and which are described more
extensively in your Letter. Further, it is understood that any modifications or
changes in Whitehall's compliance program or policies shall not diminish the
policies and programs set forth in your Letter. In order to ensure such
compliance, Xxxxxxxxx's Chief Compliance Officer and Internal Audit Director
shall, on a quarterly basis, confer with and report to the Audit Committee on
any material modifications to the compliance program and any material violations
of the policies listed above which come to their attention. In addition, for the
three years following the signing of the Agreement - - on a quarterly basis for
the first year and on a semi-annual basis for the two remaining years, Whitehall
shall submit to this Office a report signed by the Chair of the Audit Committee,
the Chief Compliance Officer and Whitehall's Internal Audit Director, detailing
Whitehall's compliance efforts, any material modifications to the compliance
program, and any material modifications to the policies which are listed above
and which are described more extensively in your Letter, as well as any material
violations
4
of these policies which have come to their attention.
7. It is agreed that Whitehall shall pay:
a. On the terms set forth in the Letter, restitution to
Capital Factors in the approximate amount of
$10,847,478;
b. For any and all goods received by Whitehall from
Cosmopolitan or entities through which Cosmopolitan
directed its business to wit: International Diamonds LLC
or Ultimo, Inc., in the approximate amount of $2,488,017
and return goods in the approximate amount of $1,446,985
on such terms as discussed in the Letter; and
c. $350,000 by certified check or bank cashier's check to
the United States Postal Inspection Service Consumer
Fraud Fund immediately upon execution of this Agreement
by all parties.
8. It is further understood that this Agreement does not bind any
federal, state or local prosecuting or regulatory authorities other than this
Office. This Office will, however, bring the cooperation of Whitehall, as well
as this Agreement, to the attention of other prosecuting offices or regulatory
authorities, if requested by Xxxxxxxxx's counsel.
9. It is further agreed that in the event that the Office, in its
sole discretion, within the next three years determines that (a) Whitehall
committed any crimes within three years subsequent to the date of the signing of
this Agreement; (b) Whitehall knowingly and intentionally has given false,
incomplete, or misleading information; or (c) Whitehall otherwise violated any
provision of this Agreement, Whitehall shall thereafter be subject to
prosecution for any federal criminal violation of which this Office has
knowledge. Any such prosecutions may be premised upon information provided by
Xxxxxxxxx and upon the admission of criminal conduct contained in this
Agreement. Moreover, Xxxxxxxxx agrees that any such prosecutions that are not
time-barred by the applicable statute of limitations on the date of the signing
of this Agreement may be commenced against Whitehall, in the Eastern District of
New York, in accordance with this Agreement, notwithstanding the expiration of
the statute of limitations
5
between the signing of this Agreement and the commencement of any such
prosecutions.
10. Furthermore, it is agreed that if the Office, in its sole
discretion, determines that Xxxxxxxxx has committed any crime after signing this
Agreement or otherwise violated any provision of this Agreement within three
years, (i) all statements by or on behalf of Whitehall to this Office or other
designated law enforcement or regulatory officials, or other testimony given by
any agent of Whitehall before a grand jury or other tribunal, whether prior to
or subsequent to the signing of this Agreement, and any leads from such
statements or testimony, shall be admissible in any and all criminal proceedings
hereafter brought against Xxxxxxxxx, and (ii) Whitehall shall not assert any
claim under the United States Constitution, any statute, Rule 11(f) of the
Federal Rules of Criminal Procedure, Rule 410 of the Federal Rules of Evidence,
Agreement with the Office or any other federal rule, that statements made by or
on behalf of Whitehall prior to or subsequent to this Agreement, or any leads
therefrom, should be suppressed.
11. The decision whether conduct and/or statements of any
individual will be imputed to Whitehall for the purpose of determining whether
Whitehall has violated any provision of this Agreement shall be in the sole
discretion of the Office. Should the Office determine that Xxxxxxxxx has
committed a knowing breach of any provision of this Agreement, the Office will
provide written notice to Whitehall and will provide Whitehall with a two-week
period in which to make a presentation to the Office to demonstrate that no
breach has occurred or, to the extent relevant, that the breach was not knowing
or had been cured. Xxxxxxxxx understands and agrees that the exercise of
discretion by the Office is not subject to review in any court or tribunal
outside the Department of Justice.
12. Xxxxxxxxx agrees that it shall not, through its attorneys,
Board of Directors, agents, officers or employees, make any public statement, in
litigation or otherwise, contradicting its acceptance of responsibility or its
agreement to implement the elements of your Letter. Any such contradictory
statement by Xxxxxxxxx, its present or future attorneys, Board of Directors,
agents, officers or employees shall constitute a breach of this Agreement and
Whitehall thereafter may, in the Office's sole discretion, be subject to
prosecution as set forth in paragraphs 9-10. The decision as to whether any such
contradictory statement will be imputed to Whitehall for the purpose of
determining whether Whitehall has
6
breached this Agreement shall be at the sole discretion of the Office. Upon the
Office's written notification of Whitehall of any such contradictory statement,
Whitehall may avoid a breach of this Agreement by publicly repudiating such
statement within three business days after notification by the Office. This
paragraph is not intended to apply to any statement made by any Whitehall
officer, director or employee or former officer, director or employee who has
been charged with a crime or other wrongdoing by the federal or any state
government or an agency thereof.
13. With respect to this matter, this Agreement supersedes all
prior, if any, written or oral understandings, promises, and/or conditions
between this Office and Whitehall, with the exception of the agreement as to
privilege as set forth in the letter from Xxxxx X. Xxxxxxx to this Office dated
October 28, 2003. No additional promises, agreements, and conditions have been
entered into other than those set forth in this letter,
7
and none will be entered into unless in writing and signed by all the parties.
Dated: September 28, 2004
Brooklyn, New York
XXXXXXX X. XXXXXXXX
United States Attorney
Eastern District of New York
By: /s/ Xxxx X. Xxxxxx
----------------------------------
Xxxx X. Xxxxxx
Assistant U.S. Attorney
Approved by:
/s/ Xxxx Xxxxxxxx
--------------------------------------
Xxxx Xxxxxxxx
Chief, Business and Securities
Fraud Unit
Agreed and consented to by:
WHITEHALL JEWELERS, INC.
By: /s/ Xxxx Xxxxxxxx
-----------------------------------
Xxxx Xxxxxxxx
Chairmen of the Board of Directors
and Chief Executive Officer,
Whitehall Jewellers, Inc.
APPROVED:
/s/ Xxxxxx X. Xxxxxxxx, Esq.
---------------------------------------
Xxxxx X. Xxxxxxx, Esq.
Xxxxxx X. Xxxxxxxx, Esq.
Attorneys for Whitehall Jewellers, Inc.
