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Amazon Settles SEC Case Over Ashford.com Accounting

Amazon.com Monday reached a settlement with the U.S. Securities and Exchange Commission (SEC) over whether it helped Ashford.com skirt accounting rules. The online giant did not admit or deny guilt, and will not pay a fine in the matter.

The settlement calls for Amazon, Ashford.com, and Ashford.com's two former top executives at the time of the violations to cease and desist violation of SEC rules. Former Ashford.com CEO Kenneth Kurtzman agreed to pay $60,000, and former CFO Brian Bergeron consented to pay $25,000.

According to the SEC case filing, the cease-and-desist order arose from a November 1999 marketing deal gone awry between Seattle-based Amazon and luxury goods retailer Ashford.com. The New Customer Agreement called for Houston-based Ashford.com to pay Amazon $6 million in return for promotion and marketing, with an extra $2 million payment if Amazon delivered 45,000 customers before the end of 2000.

On Valentine's Day 2000, in the first promotion from the deal, Amazon issued discount coupons to its customers for Ashford.com, but it failed to include unique serial numbers. The coupons ended up on an Internet message board, leading to 8,500 unintended recipients of the 11,500 discounts given, according to the SEC.

Under a March 2000 settlement, Amazon agreed to pay Ashford.com $600,000, and Ashford.com agreed to credit Amazon.com with 11,500 new customers under their marketing agreement, according to the complaint. However, following generally accepted accounting principles (GAAP) would mean Ashford.com would need to recognize expenses arising from the deal. To avoid missing analysts' estimates, the SEC said, Ashford.com CEO Kurtzman suggested only crediting Amazon 3,500 customer in this quarter, then crediting the remaining customers the following reporting period. Bergeron suggested splitting the settlement into two letters, the SEC said.

Amazon agreed to draft letters to this effect, aiding Ashford.com to improperly defer $1.5 million in expenses in order to return a pro forma net loss in line with analysts' estimates, the SEC filing said.

Global Sports acquired Ashford.com in September 2001 for $14 million in cash and stock.

In a separate matter, Amazon said the SEC had concluded its informal inquiry of Amazon's accounting practices in its Commerce Network. Amazon said no enforcement inquiry would be recommended.