The Securities and Exchange Commission has expanded its investigation into AOL Time Warner’s accounting practices, turning it into one of the largest corporate investigations, according to the Financial Times.
On Wednesday, the media giant’s management admitted that three transactions involving its AOL unit and third parties may have been inappropriately recognized as advertising and commerce revenues. The revenues amounted to about $49 million over six quarters.
According to the Financial Times report, investigators are focusing on Michael Kelly, who served as chief financial officer of AOL Time Warner last year until he was mysteriously demoted to chief operating officer of the AOL division.
Kelly was replaced as CFO by Wayne Pace, who certified the company’s financial reports on Wednesday, under the SEC’s order.
In the past month, AOL has undergone a major management shake-up, with Bob Pittman resigning as chief operating officer. Time veteran Don Logan now heads up the group as chairman of media properties, while Jon Miller was named AOL’s chief executive last week.
Grand Jury Questions Charter’s Bookkeeping
Charter Communications officials acknowledged on Friday that it has received a grand jury subpoena requesting documents relating to the company’s past and present customers as well as its policies and procedures relating to the accounting of various costs.
Charter’s management responded in a press release that it would fully cooperate with the subpoena from the U.S. District Attorney’s office for the Eastern District of Missouri and believes the issues under investigation are similar to those raised in previously reported class actions pending against the company.
In their defense, officials at the troubled telecom said that they reported in February an increase in reserves for uncollected customer accounts receivable as of December 31, 2001; that they had tightened its collection policy and procedures relating to these marginal customers; and that they expected to remove approximately 120,000 marginal customers from its basic customer account in the first quarter of 2002.
The company reflected the disconnection of 145,000 marginal customers in its latest 10-Q filing with the SEC.
Most Companies Meet Certification Deadline
The SEC says that nearly all of the 697 companies that were ordered to file certified statements about the accuracy of their financials met their August 14 deadline.
More than two dozen companies failed to certify fully or asked for postponements.
The certification requirement affected only companies that operate on calendar years. Altogether 947 of the largest companies must meet the SEC’s onetime order by December 2.
Of course, by the end of the year, all 14,000 companies overseen by the SEC—including foreign issuers of debt and equity—must certify their financials, under provisions of the recently signed Sarbanes-Oxley Act, which will become effective by August 29.
The SEC’s requirement that 947 companies certify the accuracy of their financial statements is independent of the provision from the Sarbanes-Oxley Act and is a one-shot deal.
A number of law firms reportedly advised clients to start certifying all results on Wednesday even though penalties for failing to comply with Sarbanes-Oxley are still not clear.
Former Tyco CFO Files Suit
Richard Power, who served as CFO of Tyco International Ltd. from 1983 to 1992, filed a lawsuit seeking a $9.3 million severance payment from the company, according to Dow Jones.
After serving as CFO, Power became vice president, earning $4.7 million a year in salary and bonuses, according to the suit. Power was fired on June 26 during the company’s overall shake-up.
Power reportedly claims his severance payment was supposed to be two times his salary and bonus, which works out to about $9.3 million, according to the terms of an agreement he hammered out in 1999 with then—chief executive L. Dennis Kozlowski.
Power left the company for three years, but then returned in June 1995 to serve as a restructuring expert.
According to Dow Jones, Power claims he served in that role at the “specific behest” of Kozlowski and was the only Tyco executive who discussed deals with executives of the companies that Tyco acquired.
In fact, Power claims he was an “integral figure” in Tyco’s purchase of CIT Group, ADT, US Surgical, Raychem, and divisions of Lucent Technologies Inc. and Siemens AG.
According to Power, in a 1999 phone conversation, Kozlowski promised him a minimum annual salary of $400,000; a yearly cash bonus equal to the bonus of Mark Swartz, who recently resigned as Tyco’s CFO; a grant of 200,000 stock options; immediate vesting of a portion of previously issued stock options; future annual stock-option awards of no less than 50,000 shares a year; forgiveness of a bridge loan and a “gross-up” of the loan for tax purposes; a cash contribution made to a charity; and the severance payment, which was to be greater than $1.5 million or two times Power’s salary and bonus.
Analyst Grubman Quits Salomon
Jack Grubman, the Salomon Smith Barney star telecommunications analyst, resigned Thursday amid reports of further investigations into the investment bank’s business.
The National Association of Securities Dealers is investigating whether Salomon officials may have handed clients shares of hot initial public offerings into their personal brokerage accounts at below-market prices in order to garner investment-banking business from the clients’ companies, according to The Wall Street Journal.
Last month, congressional investigators asked Grubman whether he knew Salomon handed out IPO shares to telecom executives, such as former WorldCom CEO and former client Bernard Ebbers.
Salomon officials familiar with the situation also say that Grubman’s departure will help the firm appease regulators and prosecutors who are investigating the company’s activities. Grubman reportedly took a $32 million compensation package on his way out.
New Round of Layoffs?
It may be a bit premature, but it’s starting to smell like Corporate America is entering a new round of layoffs.
Just in the past week alone, a number of major companies have announced large job cuts, or are recommending creative ways to save money on labor.
For example, IBM said in an SEC filing it canned 15,000 employees, or 5 percent of its workforce.
Meanwhile, communications-equipment maker Agere Systems Inc. on Wednesday said it would cut 4,000 jobs, or more than a third of its workforce.
Also on Wednesday, contract manufacturer Flextronics said it’s more than halfway done with its previously announced goal of cutting 10,000 jobs in an attempt to cut costs.
What’s more, management at Computer Sciences Corp., the third-largest computer-services company, said it will ask all of its 66,000 workers to volunteer to take at least six months’ leave with 20 percent pay. Management at Computer Sciences expects only a few hundred workers to accept the offer, however.
The program allows employees who take the extended leave to receive some income, “and we are able to reduce costs for that time,” Frank Pollare, a Computer Sciences spokesman, told Bloomberg.
Cal-Fed told its local employees through a letter that 700 of them will lose their jobs within the next year due to its impending merger with Citigroup, according to a published report.
And Schwab management said it plans to close an Austin, Texas-based call center, which will result in 300 workers losing their jobs. It will also lop off another 75 workers from four other call centers.
It also warned that more layoffs will be announced soon, once the company’s management figures out how to cut $200 million in annual operating expenses.
- Wal-Mart Stores Inc. said it would expense stock options beginning in February, the start of its next fiscal year. The impact on earnings per share will be less than 1 cent per share for the year.
- Pre-Paid Legal Services Inc. said it changed the composition of its board and formed compensation and nominating committees to meet the corporate-governance requirements set by the Sarbanes-Oxley Act of 2002. In a press release, the company’s management said four corporate directors resigned.
- It’s official. Thanks to US Airways Group’s bankruptcy filing, U.S. corporations set a record for bankruptcies this year, according to BankruptcyData.com. Assets of publicly traded companies filing for bankruptcy have reached $267.6 billion this year, surpassing the previous record of $258.6 billion for all of last year.
Three of the 10 largest bankruptcies ever came this year. WorldCom Inc., with $103.9 billion in assets, was the largest bankruptcy ever, easily eclipsing the record set last year by Enron Corp., which had $63.3 billion in assets.
- Conseco management said it took a $2.9 billion write-off for goodwill impairment under SFAS 142.
- Liberty Media Corp. chief executive Robert Bennett said in a conference call Thursday that the company took a second-quarter write-off of $5.1 billion for the value of its shares in publicly traded companies. They included AOL Time Warner Inc., $2.35 billion; News Corp., $1.39 billion; and Sprint PCS Group, $1.04 billion.
- In a rare jumbo underwriting, SBC Communications Inc., the second-largest local phone company, issued $1 billion in 10-year global notes, led by Deutsche Bank Securities Inc., J.P. Morgan, and Salomon Smith Barney. They were priced to yield 6.081 percent, 200 basis points higher than comparable Treasuries. The issue was rated Aa3 by Moody’s and AA-minus by S&P.