Accounting & Tax

SEC Steps Up Probe of GM’s Accounting

Subpoenas are a sign that the investigation has grown more serious.
Stephen TaubOctober 27, 2005

Officials at General Motors Corp. said the Securities and Exchange Commission is investigating pension and other postemployment benefits, as well as certain transactions between the auto giant and Delphi Corp., the bankrupt parts maker that was once part of GM.

In a regulatory filing, GM noted that the SEC has issued subpoenas concerning pension and other postemployment benefits — specifically any obligation GM may have to fund these programs in the wake of Delphi’s Chapter 11 proceedings, GM’s recovery of recall costs from suppliers, and supplier price reductions or credits.

The SEC has sought similar information from several other companies — including Boeing Co., Northwest Airlines Inc., and Navistar International Corp. — to gauge the size of their pension and health-care obligations, said Bloomberg. Reportedly these informal investigations were focused on whether the companies were too aggressive in making accounting assumptions about retiree benefits as a way to boost earnings, according to CNN Money.

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GM’s announcement was prompted by a DaimlerChrysler filing made earlier this week that revealed the German automaker received a subpoena in September focused on GM and benefits accounting, according to Bloomberg. The DaimlerChrysler filing noted that the subpoena related “to the discount rate and discount rate methodology used in connection with such benefits for employees in North America, and communications with GM, Ford, and/or Delphi regarding such rate or methodology.”

The revelation about the subpoenas was a sign that the SEC’s probe has grown more serious and was focused on GM, said The New York Times. The paper stressed that the SEC cannot serve companies with subpoenas unless the commission has voted to authorize a formal investigation.

Separately, GM officials said the SEC and federal grand jury subpoenas have been served on the company’s GMAC unit in connection with industrywide investigations into practices in the insurance industry relating to such loss mitigation insurance products as finite risk insurance. GM executives have stated that the company is cooperating with all of these investigations, and that there are no further comments at this time.

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