Risk & Compliance

SEC Upgrades IBM Disclosure Probe

Now the commmission can subpoena documents, E-mail, and people.
Stephen TaubJanuary 13, 2006

The Securities and Exchange Commission has raised the status of its probe of IBM’s earnings disclosures from an informal investigation to a formal one, according to the company.

In an 8-K filing, Big Blue stated that the commission is looking into the company’s disclosures of its first-quarter 2005 earnings and expensing of stock compensation. The news sent IBM’s share price tumbling about 1.3 percent in after-market trading Thursday evening.

IBM began expensing the value of its stock options in the first quarter of 2005, a full year ahead of when it was required to do so. Some analysts had complained at the time that IBM provided confusing guidance about the impact the expense would have on its quarterly earnings.

“IBM has no reason to believe that the accuracy of reported earnings for the first quarter of 2005 is at issue,” IBM spokesperson Edward Barbini told Reuters, declining to comment further.

Formalizing the investigation enables the SEC to subpoena documents, E-mails, and individuals, according to Reuters. “I do think the change in the status makes it more likely that the SEC will find some fault with their disclosure practice. Most people already knew about this,” Richard Petersen, an analyst at Pacific Crest Securities, told the wire service.

IBM stated that it would continue to cooperate with the SEC and that the commission informed the company that the probe shouldn’t be understood as a sign that it has committed any legal breaches.

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