Investigations and Controversies
Bally Total Fitness has been the subject of controversy over their sales and membership cancellation practices, with some customers claiming they were misled into signing long term membership contracts that can last for three years, and subsequently found themselves dealing with collection agencies.
In April 1994, Bally paid $120,000 to settle Federal Trade Commission charges of illegal billing, cancellation, refund, and debt-collection practices. But consumers complain that little has changed over the years. From 1999 to 2004, over six hundred customers complained to the New York Attorney General's office, leading to an investigation and subsequent agreement by Bally Total Fitness to reform their sales tactics in February 2004.
The company is the subject of numerous complaints on the ConsumerAffairs.com website, which Bally company representatives sometimes post public responses to.
Bally has been the subject of at least one federal investigation, in addition to the aforementioned probe into consumer complaints against Bally, conducted by the New York State Attorney General, regarding the firm's sales practices. In April 2004, Bally disclosed the U.S. Securities and Exchange Commission (SEC) was investigating its accounting practices, and in February 2005, the U.S. Justice Department joined the probe. The company eventually restated its financial statements for 1997 through 2003.
On February 28, 2008, the SEC formally filed financial fraud charges against Bally Total Fitness. Among the charges, the SEC alleges that in 2001, Bally overstated its originally reported stockholder's equity by roughly $1.8 billion (over 340%), and understated its 2003 net loss by $90.8 million (or 845%).
In December 2009, the United States Securities and Exchange Commission announced that the auditing firm of Ernst & Young 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 Bally. The SEC also settled charges against former Bally chief financial officer John W. Dwyer, and former controller Theodore Noncek. Dwyer agreed to pay a $250,000 fine and was permanently barred from serving as an officer or director at a public company. Noncek consented to similar injunctions for two years. The Ernst & Young Chicago partners - where Lee Hillman and Dwyer had worked prior to Bally - 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 2010, Texas Attorney General Greg Abbott announced that the company mailed over 11,000 fake past due notices to former members. The accusations state that Bally urged consumers to immediately pay their late fees and were a scheme to get them to re-join the club.
Read more about this topic: Bally Total Fitness