Growth Strategies

Did Hawk Fly Too High?

A formal investigation by the SEC appears to question whether the auto-parts maker was actually small enough to delay compliance with Section 404 o...
Stephen TaubMay 30, 2007

Hawk Corp. said the Securities and Exchange Commission has launched a formal investigation into the auto-parts maker’s compliance with section 404 of the Sarbanes-Oxley Act

According to a filing issued Wednesday by Hawk, the SEC is apparently exploring whether or not various stock transactions might have affected the company’s claim that it qualified as a non-accelerated filer. Companies with market caps of less than $75 million were given additional time — and two extensions — to comply with Section 404 of the Sarbanes-Oxley Act. In its annual report, filed in March, Hawk noted, “At this time, we continue to qualify for non-accelerated filer status and therefore, will not need to comply with Section 404 until December 31, 2007.”

On Wednesday, however, the company — whose market cap is currently about $116 million — said the SEC is investigating how the date by which Hawk would have had to comply with Section 404 was affected by “transactions in Hawk’s common stock by a stockholder that is not affiliated with Hawk” on June 30, 2006, as well as “the calculation of the amount of Hawk common stock held by non-affiliates.”

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The SEC, it said, is also probing communications between Hawk and third parties regarding Section 404 compliance and Hawk’s periodic disclosure requirements related to all of these issues, according to the filing.

Hawk, which makes brakes, clutches and transmissions, stressed that it has cooperated fully with the previously announced informal inquiry and intends to continue to cooperate fully with the formal investigation. Hawk also noted in its filing that it has also been contacted by the U.S. Department of Justice. The company’s stock fell about five percent on the news on a day when the overall stock market went up.

The company also said that although it believes that insurance proceeds are available for its defense, it may continue to incur additional expenses related to the SEC and investigations and the expenses may be substantial, including indemnification costs for which Hawk may be responsible. “Any adverse development in connection with the SEC or DOJ investigations could adversely impact Hawk’s business and results of operations,” it further warned.