Bally Total Fitness settled a lawsuit filed Feb. 28 by the Securities and Exchange Commission, but the fitness company might still have reason to sweat. Although Bally settled the lawsuit the same day it was filed in the U.S. District Court, District of Columbia (by consenting to obey a court order not to violate securities laws in the future), the SEC said it is still investigating Bally.
Officials won’t say, however, why the investigation is ongoing or what they are looking into.
“The investigation continues, but our investigations are non-public, and I can’t comment on what we’re continuing to look at,” Fredric Firestone, an associate director in the SEC Division of Enforcement, told SNEWS®.
In the settled lawsuit, the SEC charged that from 1997 to 2003 Bally’s improper accounting overstated its stockholders’ equity and understated the company’s net losses.
“Bally fraudulently accounted for three types of revenue it received from its members: initiation fees, prepaid dues, and reactivation fees; additionally, Bally fraudulently accounted for its membership acquisition costs,” the SEC said in a statement.
“These frauds account for $1.2 billion of the $1.8 billion overstatement of Bally’s originally reported year-end 2001 stockholders’ equity. In addition, Bally’s accounting for more than 20 other revenue or expense items failed to conform to Generally Accepted Accounting Principles. These failures account for the remaining $600 million of the $1.8 billion overstatement of Bally’s originally reported year-end 2001 stockholders’ equity.”
Bally ended the legal action with a “consent decree” in which it neither admitted nor denied the SEC’s allegations, but it agreed to a court order preventing Bally from violating certain SEC provisions in the future. According to the SEC statement, “The commission considered Bally’s cooperation with the Commission staff in the investigation leading to this action and prompt commencement of remedial action.”
The still-ongoing investigation was not affected by the decree.