## Facts

- The Securities and Exchange Commission (SEC) filed a civil enforcement action against Spiegel, Inc., alleging Spiegel failed to make required periodic filings and failed to disclose an auditor’s opinion that cast doubt on Spiegel’s ability to continue as a going concern.
- Spiegel consented to relief without admitting or denying the complaint’s allegations, including entry of an injunction against future violations and the appointment of an independent examiner to review Spiegel’s records and report to the court.
- The examiner found that Spiegel had offered credit cards to higher-risk borrowers and sold the receivables through an asset-backed securitization program using special-purpose entities.
- The examiner reported that, as economic conditions worsened and customer delinquencies increased, Spiegel’s securitizations nearly hit a performance trigger that would have caused rapid amortization and likely bankruptcy; the examiner concluded Spiegel manipulated a component used to calculate that trigger to avoid the outcome.
- The examiner also described Spiegel’s growing financial distress in 2001 and early 2002.
- As Spiegel prepared its Form 10-K for 2001, Spiegel’s auditor advised that the auditor would need to issue a “going concern” opinion; Spiegel decided not to file the Form 10-K rather than file it with that opinion.
- Nasdaq warned Spiegel that it faced delisting unless it filed the 10-K; Spiegel’s U.S.-based management, U.S. counsel, and auditors recommended filing, but Spiegel’s German executive committee directed that Spiegel not file the 10-K.
- The examiner reported that Spiegel also did not file its Forms 10-Q during 2002, resulting in an extended gap in reporting that left investors without the information typically available through Exchange Act reports.
- The examiner discussed advice from outside counsel concerning Spiegel’s reporting duties and counsel’s communications to company leadership, including questions about whether additional reporting “up the ladder” should have occurred after leadership rejected counsel’s advice.
- The examiner issued a written report dated September 5, 2003.
- The SEC moved for an order making the examiner’s report available to the public by placing it in the case filings and posting it on the court’s website.

## Issues

1. Whether the court should order the independent examiner’s September 5, 2003 report to be made publicly available by filing it on the docket and posting it on the court’s website.
2. Whether the court should determine that the report contains information that is material to investors and that public disclosure is in the public interest.

## Decision

- The court granted the SEC’s motion.
- The court ordered that the independent examiner’s report be included in the filings for the case.
- The court ordered that the report be posted on the official website for the United States District Court for the Northern District of Illinois (effective September 15, 2003).
- The court found that the information in the report was material to the investing public and that making the report available to the public was in the public interest.

## Legal Principles

- In an SEC enforcement action, a district court may order public access to an independent examiner’s report prepared under the court’s authority when disclosure serves investor protection and the public interest.
- Information is material if there is a substantial likelihood that a reasonable investor would consider it important in making an investment decision, including information about an issuer’s financial condition, reporting status, and significant accounting practices.
- A court supervising an examiner appointed as part of consent-based equitable relief may manage the use and public availability of the examiner’s work product as part of administering the remedy and the court record.
- Public access to judicial filings is strongly favored, particularly where the filing concerns information relevant to public investors and market transparency, absent countervailing confidentiality needs sufficient to justify restriction.

## Conclusion

The court granted the SEC’s request to make the independent examiner’s report public, ordering it filed in the case and posted online, because the report addressed Spiegel’s financial condition and accounting/reporting problems in a way the court found material to investors and consistent with the public interest.


Securities and Exchange Commission v. Spiegel, Inc., CIVIL ACTION FILE NO. 03C-1685 (N.D. Ill. Sep. 11, 2003)