Chicago Bally Workout 333

The Chicago Tribune reported accounting fraud involving Bally Total Fitness. The guilty parties should be forced to become Bally members – and also clean out the toilet stalls.

Enjoy your workout.

Ernst & Young settles charges in Bally Total Fitness fraud
SEC: Partners failed to detect and report accounting issues

By Julie Wernau, Tribune reporter
December 18, 2009

Ernst & Young LLP agreed to pay $8.5 million to settle charges against six current and former partners—five based in Chicago—for failing to detect and report accounting fraud at Chicago-based Bally Total Fitness Holding Corp., the Securities and Exchange Commission said Thursday.

The SEC also settled charges Thursday against former Bally Chief Financial Officer John Dwyer and former Controller Theodore Noncek, pending court approval.

Dwyer agreed to pay $250,000 and has been permanently barred from serving as an officer or director at a public company. Noncek consented to similar injunctions for two years.

A Bally representative said the company had no comment on the settlements.

The Ernst & Young partners audited Bally from 2001 to 2003 and failed to find and report fraud despite the fact that Ernst & Young had previously identified Bally as its riskiest account in the Chicago area.

Bally overstated its year-end 2001 stockholders’ equity by $1.8 billion and understated net losses in 2002 by $92.4 million and by $90.8 million in 2003.

In February 2008 the fitness center operator was charged with fraud after the SEC found that from at least 1997 to 2003 the company had recognized revenue it didn’t have from initiation fees, prepaid dues and reactivation fees. Bally emerged from bankruptcy for the second time in two years in August. It wasn’t required to pay a penalty for the fraud.

Three Ernst & Young partners who were charged remain at the firm. They are Randy Fletchall, who was in charge of its national office in New York, and two based in Chicago, Mark Sever, Ernst & Young’s national director of area professional practice, and Kenneth Peterson, the professional practice director.

The other three from the Chicago office are no longer with the firm. They are Thomas Vogelsinger, the area managing partner until October 2003, William Carpenter, engagement partner for the 2003 audit, and John Kiss, the engagement partner for the 2001 and 2002 audits.

The SEC barred Sever and Kiss from practicing before the SEC as accountants for three years and barred Peterson and Carpenter from practicing for two years. For repeated instances of unreasonable conduct Vogelsinger was barred from practicing for nine months, and for a single instance of highly unreasonable conduct Fletchall was censured.

All those charged agreed to settle without admitting or denying charges against them.

Attorneys for the men either declined to comment or referred questions to Ernst & Young.

In a statement the firm said, “These settlements allow us and several of our partners to put this matter behind us and resolve issues that arose more than five years ago.”

Chicago Bally Workout 332

Has LA Fitness really ended the special pre-opening rates? There’s no mention of the discounts on the latest coupons being distributed by staffers.

However, now LA Fitness is declaring the club is “Ranked #1 – Best Value In The East Loop.” How can you be ranked first if you’ve only been open for a month? And how can you make a best value claim when your rates are over double what Bally charges? The LA Fitness advertising department must be taking promotion enhancement drugs.

Enjoy your workout.

Chicago Bally Workout 331

Well, it’s December and LA Fitness is still hyping pre-opening rates. So much for the limited-time-only Black Friday deal. Look for management to generously extend the offer in honor of Hanukkah and Kwanzaa.

Enjoy your workout.

Chicago Bally Workout 330

Bally continues its automated efforts to re-sign ex-members. Ironically, the envelope encourages saving paper – even though Bally constantly sends junk mail that fills up the recycling bin. The latest correspondence includes a coupon to present a membership to a friend or loved one as a seasonal gift. The accompanying letter almost gives the false impression that your cancelled membership and related fees are still in effect. Plus, there’s a handy Fitness Tip of the Month recommending eating at regular intervals during the holidays. The letter ends by inviting you to visit the website for other helpful tips and tools – and to make a payment online. How very thoughtful.

Enjoy your workout.

Chicago Bally Workout 329

LA Fitness is now hyping its reduced rates as a Black Friday special. Um, they’ve been offering these Black Friday prices on Fridays all summer long. And we’re not seeing any stampeding crowds – except for the holiday shoppers speeding past the new club.

Enjoy your workout.

Chicago Bally Workout 328

Now LA Fitness is handing out postcards with a handwritten note stating: Preview rates exp 11/30. Right. Then next week, the special discounts will be called “Holiday Rates.” And in January, they’ll be “New Year’s Resolution Rates.” In February, you’ll see “Black History Month Rates.” Etcetera, etcetera. Oh, but the bargain fees will still be over double of what Bally charges.

Enjoy your workout.

Chicago Bally Workout 327

It’s hard to imagine another industry in greater need of reform than the Health Club category. From the hucksterism to the contracts/non-contracts to the fees to the facilities, these places require more complete makeovers than the typical contestants on The Biggest Loser. LA Fitness continues to hype itself with the same promotions. The postcard still proclaims: PRE-SALES ARE NOW COMING TO AN END. LAST CHANCE FOR A DISCOUNTED RATE! Um, right. It’s the last chance until, say, late December, when the health clubs will proceed to con woo the New Year’s Resolution crowd. The LA Fitness postcard also asks: ALREADY HAVE A CLUB MEMBERSHIP? ASK ABOUT OUR COMPETITOR RATE? It’s unlikely that Bally members may enjoy this offer, as Bally cannot be viewed as legitimate competition – especially given the fact that LA Fitness rates are roughly double what Bally charges. Finally, LA Fitness is once again handing out 3 for 3 Sports Club Passes. Has anyone attempted to collect a year’s worth of these passes to redeem for free membership?

Enjoy your workout.

Chicago Bally Workout 326

Bally continues to send junk mail in the hopes of luring ex-members to return. However, the reduced rate deal is the same – a mere 10% off. Plus, you receive the standard hype of adding a friend or family member for more savings. Of course, they’ve thrown in a free 14-day guest pass. What’s next? Complimentary toilet paper with every visit?

Enjoy your workout.

Chicago Bally Workout 325

Oops. We posted the final entry too soon. An ominous letter appeared in the mailbox with a message that read: Your IMMEDIATE ATTENTION is required.

It turned out to be from Bally, announcing receipt of our membership cancellation request. And the note stated: However, your account remains eligible for promotional reactivation offers.

Oh boy! Guess we can expect to receive more 7-day guest passes.

Enjoy your workout.

Chicago Bally Workout 324

The time has come to say farewell. We have opted to end our tour of duty at Bally. Not surprisingly, email offers begging for membership renewal are already arriving regularly – seeking to entice with reduced rates. Why do services wait until customers leave before offering extra special prices?

Thanks to everyone who has visited in the past months. Plus, thanks to all the Bally members and staffers who provided content ideas.

Enjoy your workout.