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Playboy Liable for $6M for Firing Exec Who Exposed Bonus Scheme

The jury found that Playboy unlawfully fired the executive in retaliation for exposing a $1.1 million bonus scheme.

A federal jury in California held skin magazine publisher Playboy Enterprises liable for $6 million for the wrongful firing of a corporate controller who reported a suspicious bonus scheme to company management.

The jury ruled on March 5 that Corporate Controller Catherine Zulfer, 59, was unlawfully terminated for reporting "actual and suspected frauds and improprieties" within the company. Her firing violated the federal whistleblower protections of the 2002 Sarbanes-Oxley Act. She had worked for Playboy for 30 years.

While the company was suffering major financial losses and eliminating much of its workforce in 2009 and 2010, it hired new management, including Chief Financial Officer Christoph Pachler.

Pachler asked Zulfer to set aside $1.1 million in bonuses for himself and the CEO in January 2011. Suspecting an embezzlement scheme, she refused, saying that Board approval was needed. When Pachler pressured her, she reported the issue to Playboy's General Counsel Howard Shapiro, saying that it violated internal controls and generally-accepted accounting procedures. She also reported the scheme to the Securities and Exchange Commission.

Thereafter, Pachler stopped talking to Zulfer, excluded her from meetings and withheld crucial information she needed to do her job. He also set her up to fail by eliminating 15 corporate accounting jobs in Chicago and reassigning all the duties to her. In August 2011, Pachler eliminated Zulfer's job.

Zulfer was represented by National Trial Lawyers member David deRubertis and Helen Kim of The deRubertis Law Firm in Studio City, CA. They argued that her firing was merely a pretext for retaliation against her for exposing Pachler's attempt to use deceptive accounting practices.

Playboy claimed that her public accounting duties were no longer needed once Playboy went back to being a  privately-owned company. At the trial Playboy argued that the bonus set-aside complied with accounting rules and that no Board clearance was needed. The Board did approve the bonuses later, and she reported no wrongdoing at a meeting of the Board's Audit Committee.

But the jury saw otherwise, finding that her firing was revenge. That violated the The Sarbanes-Oxley law, which sets strict requirements for financial disclosures from corporations to prevent accounting fraud. It was enacted in response to the accounting scandals at Enron, Tyco, and WorldCom in the early 2000s. The law contains significant protections for corporate "whistleblowers," who expose company fraud.

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