Channel Stuffing

Companies Engaged in Channel Stuffing

There are many well-known companies that have been accused of participating in channel stuffing such as Coca Cola, Clear One Communications, Sunbeam, and Hugo Boss. For many years accounting regulators focused their attention on the software industry to find and detect channel surfing practices. However, in recent years, the practice of channel stuffing was evident in various industries.

In 2006, Coca Cola was involved in a securities fraud class action lawsuit. The company was sued and accused of knowingly participating in channel stuffing yet not disclosing it in their financial statements. During the period of the alleged channel stuffing events, Coca Cola’s stock prices climbed. In 2004, when Coca Cola decided to issue a restatement indicating their factual financial position with regards to their channel stuffing activities, their stock prices fell by 25%. Clear One Communication also faced similar allegations, however a lawsuit did not occur. Clear One denied all allegations. However, they announced they made significant changes to their distribution model and customer payment terms to ensure channel stuffing will not occur. Another well-known company that faced SEC scrutiny was Sunbeam. Sunbeam faced a SEC initiated class action lawsuit because of channel stuffing practices. In the late 1990’s, Sunbeam encountered a major lawsuit that claimed the company offered deep discounts and inducements to its customers to purchase its merchandise immediately versus the later periods in which the goods would have been actually sold. The accusations and lawsuits led Sunbeam to eventually file for bankruptcy. The designer clothing company, Hugo Boss, was also accused of forcing their distribution network to accept merchandise, though there was no demand, in an effort to boost revenue numbers. It was claimed that their alleged channel stuffing practice led to an overstatement of post-tax revenue dollars of...