Synopsis

“Chainsaw Al” Dunlap took control of struggling home appliance maker Sunbeam in July 1996. Within two years, Sunbeam’s stock price rose from $12.50 to $47 per share. In June 1998, Barron’smagazine published an article accusing Sunbeam of overstating its revenues and understating its expenses. After Sunbeam restated its 1996 through 1998 earnings, the SEC charged Dunlap and five other Sunbeam executives with conspiring to fraudulently misrepresent the company’s earnings. The SEC also filed charges against Arthur Andersen partner Phillip E. Harlow after discovering that the auditors had discovered $18 million of errors in Sunbeam’s 1996 financial statements but had issued a clean opinion after concluding the misstatements were “immaterial.”

Discussion Questions

1. Why was Al Dunlap unable to sell Sunbeam in 1997?
2. What events led to Dunlap’s ouster and the discovery of the Sunbeam fraud?
3. What motive did Al Dunlap and Donald Kersh have to record $35 million of excessive writedowns and unnecessary reserves in 1996?
4. What methods did Sunbeam use to accelerate sales in 1997? How did these tactics affect Sunbeam’s 1998 sales?
5. According to the SEC, what errors did Phillip E. Harlow make during his audits of Sunbeam’s 1996 and 1997 financial statements?
6. How might Al Dunlap’s management style have created a culture wherein fraud could occur without being reported?

Additional Resources

Sunbeam. Selected scenes from the PBS television series “Frontline” discussing the Sunbeam accounting fraud (6:29 minutes).