VideoArthur Levitt's legacy lives on.
On Monday, the Securities and Exchange Commission brought its first enforcement actions for Regulation FD violations, a little more than two years after the rule went into effect.
The regulatory agency settled charges against Raytheon Co., Siebel Systems Inc., and Secure Computing Corp. and issued a report of investigation against Motorola Corp.
Siebel was the only company to agree to pay money, settling on a $250,000 civil penalty.
The SEC issued cease-and-desist orders against Raytheon and CFO Franklyn A. Caine, and Secure Computing and CEO John McNulty.
The commission alleged Caine selectively disclosed earnings guidance for the first quarter of 2001 and for the full year to a select group of analysts after conducting an investor conference.
"During the calls that ensued, Caine knew that Raytheon had provided no public quarterly earnings guidance for 2001," the SEC stated in its enforcement action.
In the case of software vendor Siebel, the SEC alleged that on November 5, 2001, the company's CEO, Thomas Siebel, disclosed material, nonpublic information to attendees at an invitation-only technology conference hosted by Goldman Sachs & Co. The SEC did not identify CEO Siebel by name in the action.
The commission said in its complaint that in response to questions from the Goldman analyst who organized the conference, the company's CEO disclosed that the company was optimistic because its business was returning to normal.
"These statements contrasted with negative statements that he had made about the company's business three weeks earlier, in which he characterized the market for information technology as tough, and indicated that the company expected business to remain that way for the rest of the year," the commission added.
The SEC added that prior to the conference, Siebel's investor-relations staff knew that the conference would not be simultaneously broadcast to the public. "As a result, the company intentionally disclosed material, nonpublic information at the technology conference," the commission added.
In a statement issued yesterday, Siebel management claimed that the company's CEO did not know the conference was not going to be Webcast.
As for Secure Computing, the SEC alleged that in early March 2002, the software company and McNulty selectively disclosed material nonpublic information about a significant contract to two portfolio managers.
"Following the disclosures, Secure announced the contract to the public in a press release issued after the close of the stock markets," the commission added. "However, investors who sold Secure stock prior to the company's press release were denied information that may have affected their investment decisions."
The SEC said Motorola also engaged in the type of conduct Reg FD was designed to reign in. However, the commission did not launch a formal enforcement action against Motorola because "it appears that the legal advice, however erroneous, was sought and given in good faith."
Did CA Postdate?
Computer Associates can't seem to shake suspicion about its accounting practices.
Last week's stunning resignation of chairman Charles Wang only reinforced the skepticism among some observers. Then on Monday the Wall Street Journal reported that federal investigators have received information from former CA employees who claim that the software giant changed the dates on customer contracts to manage its earnings reports so that it could regularly meet Wall Street's earnings forecasts.
Employees also told investigators that CA bundled "free" software with some maintenance-contract renewals to justify booking more revenue up front than accounting rules permit for maintenance-only deals, the paper added.
The Justice Department and the SEC have been scrutinizing CA's books for the past year. The Journal reported CA's lawyers have said investigators are focusing only on the $1.1 billion stock grant to three top executives in 1998.
But the paper reported that federal investigators have been investigating transactions as recent as last year, citing people familiar with the matter. This means the probe covers a period well after CA totally revamped its accounting practices in an effort to more-conservatively book software leases.
On Monday CA issued an official response to the Journal's article, asserting that the company books revenue in accordance with the revenue-recognition policies outlined in its public filings with the SEC.
In addition, CA management claimed that some former employees and their lawyers are making assertions about CA's booking practices to embarrass the company and press their individual lawsuits.
CA's management also stated that the company has now completed an examination of what it believes are the contracts in question. "We have found that, in every case, the revenue for the transactions was booked properly and in accordance with our publicly stated revenue recognition policies," it added in its release.
CA also said it is cooperating with the Justice Department and the SEC, adding, "We continue to believe that our accounting has been proper."
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