FNN Fires Its Financial Chief, Auditing Firm
Financially troubled Financial News Network said Friday that it terminated its outside accounting firm and fired the network’s chief financial officer over payments he allegedly received from an unidentified source.
FNN said a special committee of its board had determined that former Chief Financial Officer C. Steven Bolen, 44, “received compensation payments that were not properly authorized.” In addition, “certain bank accounts administered under Bolen’s direction were not properly directed.”
FNN said, however, that it believes all funds in those bank accounts are now properly recorded. The company said two other accountants who worked in the financial department have also been suspended. Bolen could not be reached for comment.
Friday’s announcement came two weeks after FNN told the Securities and Exchange Commission that it could not file its fiscal 1990 financial reports because a dispute with its auditors, Deloitte & Touche, could lead to a default on bank loans and a “very substantial non-cash loss” for the fourth quarter.
In a prepared statement, FNN said its board of directors and audit committee had recommended that Deloitte & Touche be fired because the outside auditors were “unable to complete the audit work in a timely fashion.”
FNN also revealed Friday that Deloitte & Touche no longer stood behind its audit of financial statements for the previous year. Those statements will now have to be reviewed by a new accounting firm, Coopers & Lybrand, which will also take up the issue of FNN’s incomplete 1990 report.
The dispute between FNN and its fired auditors centered upon the treatment of FNN’s approximately $28-million investment in the video service FNN:Pro, which was launched in July and supplies market information to institutional stock traders. Analysts said FNN wanted to capitalize the investment over several years while their auditors argued that it should be taken as a one-time expense in the fourth quarter, which would trigger a huge loss.
That would have put FNN in default on $48.5 million in loans from Security Pacific and Toronto Dominion banks. Banks typically write covenants into their credit agreements that allow them to call the loans if certain financial measures such as asset values and net worth are not maintained.
Analysts said the latest developments deepened the crises at FNN, which has seen its stock price slide 46% in the past two weeks, since FNN first disclosed the problem. Despite the latest revelations, the stock closed unchanged Friday at $3.125 a share.
Friday’s announcement “implies their credibility is destroyed,” said Mark Reilly of the New York investment firm of MacDonald Grippo Reilly. “The management could get totally washed out to sea, along with their ability to lead the company.”
Ken Goldman, an analyst with Denver-based Hanifen Imhoff Inc., who previously recommended purchase of the stock, said he was “suspending” his opinion in light of the new facts. He added that the dearth of financial information now coming from FNN “essentially invalidates all projections we had made.”
But Goldman and other analysts still believe that FNN’s core 24-hour cable channel remains healthy and might be attractive to a potential buyer.
“We still feel that such an asset could command a price in an auction that is considerably higher than today’s stock price,” he said.
Goldman said he thought if FNN were sold, it could fetch between $8 and $10 per share, or $145 million to $200 million or more.
Specifically, FNN’s problems relate to a series of complicated third-party transactions among FNN, sister company United Press International and their parent, Infotechnology Inc. Infotech owns 47% of FNN and acquired troubled UPI in 1988.
Deloitte told FNN that new information has come to light since it approved the company’s 1989 report. Questions have been raised about, among other things, payments made by UPI to FNN for use of FNN technical facilities and the value of certain assets related to TelShop, a home-shopping channel shut down by FNN in 1989, when it took a $17-million writedown.
