SAKS MOVE SHOWS SEC SCRUTINIZING CHARGEBACK ABUSE.

Byline: Barbara Thau

BIRMINGHAM, Ala.-Merchants beware: Saks Inc. is ousting executives for improper markdown allowances, as retail chargeback abuses have come under the watchful eye of the Securities and Exchange Commission and now the federal government.

Saks is firing three senior executives and penalizing Brad Martin, its chairman and chief executive officer, as a result of its internal investigation of alleged improper vendor markdown allowances at its upscale Saks Fifth Avenue chain.

The case could finally set a precedent for the way retailers process chargebacks and curtail bogus ones -- a chronic complaint by vendors.

In March, Saks revealed that it was investigating alleged overcollection of vendor markdown money of about $20 million between 1999 and 2003

An investigation by the Securities and Exchange Commission is under way, and the office of the U.S. Attorney for the Southern District of New York is now looking into the matter.

Donald Watros, the chief administrative officer; Brian Martin, the brother of CEO Brad Martin and general counsel of the company at the time of the 2002 investigation; and Donald Wright, chief accounting officer, were asked to resign.

As previously reported, the company plans to reimburse or compensate affected vendors for improper allowances. And management has been asked to develop an "action plan" for enhanced ethics training.

"This [investigation] has led to firings, return of money, plus a lot of embarrassment," Maggie Gilliam, president of Gilliam & Co., a business advisement firm, told HFN. "Retailers will be looking more closely at their chargeback practices. I would be extremely surprised if Saks is the only one [with improper chargeback practices.]"