A federal jury in New York Monday convicted Bradley Stinn, the former chief executive officer at Friedman’s, Inc. and its affiliate, Crescent Jewelers, of securities fraud, mail fraud, and conspiracy, for his participation in what federal prosecutors call a “massive accounting fraud scheme designed to inflate Friedman’s financial performance.”

The jury also returned a forfeiture verdict against Stinn for more than $1 million.

Stinn, 47, will face a maximum sentence of 25 years’ imprisonment on the most serious charge. A sentencing hearing before U.S. Judge for the Eastern District of New York Nina Gershon is scheduled for July 9.

The government’s investigation also resulted in the guilty pleas of Friedman’s and Crescent’s former chief financial officer and Friedman’s former controller, and the execution of non-prosecution agreements by Friedman’s and Crescent, pursuant to which the companies agreed to forfeit $3 million, cooperate fully with the government’s investigation, and adopt significant corporate reforms to prevent recurrence of the fraud.

Stinn’s conviction was announced by Benton J. Campbell, U.S. attorney for the Eastern District of New York.

During the period of the conspiracy, Friedman’s was the third largest specialty retailer of fine jewelry in the United States, operating 686 stores in 20 states.

Federal prosecutors, during the six-week trial, established that Friedman’s encouraged its sales personnel to increase sales by inducing customers to finance their jewelry purchases using the company’s installment credit program, which was used to finance more than half of Friedman’s $400 million in annual net sales. A major aspect of the fraud scheme was concealing that Friedman’s was increasingly unable to collect money owed by customers who bought jewelry on credit. Friedman’s collection problems stemmed from the company’s widespread failure to follow its own credit-granting guidelines, prosecutors said.

“Stinn falsely told investors (credit-granting guidelines) were strictly enforced,” prosecutors said in a statement. “In fact, Stinn and other senior executives encouraged routine violations of the guidelines to increase the company’s reported sales.”

To cover up the collection problems, prosecutors said Stinn caused Friedman’s quarterly reported credit statistics to understate the delinquency of its credit portfolio, and caused Friedman’s to report false earnings numbers. In some cases, the false earnings reported by Friedman’s met or exceeded the public estimates of professional stock analysts, and resulted in the artificial inflation of Friedman’s stock price.

Between November 2003 and May 2004, Friedman’s stock price lost more than half its value. On Nov. 11, 2003, the stock closed at $11.99 per share. On May 6, 2004, the New York Stock Exchange halted trading in Friedman’s stock, at which time the stock was trading at $4.97 per share. On Jan. 14, 2005, Friedman’s filed for Chapter 11 bankruptcy.

The government’s case was prosecuted by assistant U.S. Attys. Scott Klugman, Ilene Jaroslaw, James McGovern, and Laura Mantell.

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