Once again, Siebel Systems is being investigated for selectively disclosing critical information.
In a regulatory filing, officials at the software maker revealed that the Securities and Exchange Commission may take enforcement action against the company, and several officers, for statements allegedly made at the time of a business dinner this past spring.
The SEC is looking into a May 1, 2003, article posted on the CBS MarketWatch Web site that raised questions regarding the company’s compliance with Regulation Fair Disclosure, the three-year-old rule intended to ensure equitable dissemination of material financial information about public companies.
Siebel chief financial officer Ken Goldman was one of the executives who spoke with a select group of analysts before and after dinner on April 30. A day after the meeting, Siebel shares jumped 8 percent on unusually high volume during a day when most software stocks went down, MarketWatch reported.
No enforcement action has been initiated, and no findings have been issued, according to the SEC documents. Reportedly, company officials would not reveal the names of the two executives against which the SEC staff recommended taking action.
“We, along with our officers, have filed submissions with the SEC in response to the potential actions and we believe that these submissions contain numerous meritorious defenses to these allegations,” stated the Siebel filing.
If Siebel is found to have broken the law, it would become the first company to be hit twice with penalties for violating Regulation Fair Disclosure. In November 2002, the SEC brought its initial enforcement actions regarding Reg FD, settling with Siebel, Raytheon Co., and Secure Computing Corp.
SEC Probes Compliance at Foreign Subsidiary of Eli Lilly
Executives at Eli Lilly & Co. announced that the Securities and Exchange Commission has requested documents related to its Polish subsidiary to determine whether U.S. laws were broken.
The SEC is conducting an informal inquiry into “the compliance by Polish subsidiaries of certain pharmaceutical companies with the U.S. Foreign Corrupt Practices Act of 1977,” the drug maker revealed in a government filing. Company officials noted that they are cooperating with the SEC’s probe.
“At this point, we are unaware of any wrongdoing on the part of the company,” Lilly spokeswoman Terra Fox told the Associated Press. Officials made clear that the investigation will not have a material adverse effect on its consolidated financial position or liquidity, but could possibly be material to the consolidated results of operations in any one accounting period.
Lilly’s Polish office in Warsaw employs about 300 marketing, sales, and medical staff, Fox told the wire service. It employs about 43,000 people worldwide and 16,000 in Indiana.
Friedman’s CFO on Leave Amid Investigation
Victor M. Suglia, CFO of Friedman’s Inc., was placed on leave by the jewelry retailer. In addition, the SEC launched a formal investigation of the company related to a lawsuit filed by Capital Factors Inc., against Cosmopolitan Gem Corp. (a former vendor of Friedman’s) and a number of other defendants, including Friedman’s, Crescent Jewelers and Whitehall Jewelers.
The SEC’s initial, informal inquiry has been expanded to include a review of the company’s allowance for doubtful accounts and other financial matters. The suit seeks to determine whether the company may have issued materially false or misleading disclosures, and whether there are possible violations of internal controls, and books-and-records provisions, for the period from January 1, 2000, to date.
Friedman’s officials also announced that a similar, previously reported investigation by the U.S. Department of Justice has also been expanded.
According to company officials, the allowance for doubtful accounts on Friedman’s balance sheet, as of September 27, 2003, is expected to increase beyond previous expectations. Now the allowances will range between 14 percent to 17 percent of accounts receivable outstanding as of September 27, 2003, compared with the previously disclosed 10.5 percent. “However, this estimate is subject to further adjustment based upon completion of the company’s analysis and Ernst & Young’s audit of the company’s financial statements,” noted a Friedman’s spokesperson.
Assuming this allowance is included in the operating results for the year-ended September 27, 2003, the company would incur an additional non-cash charge (net of income tax) ranging from 23 cents to 43 cents per share, and would reduce book value by about 1.4 percent to 2.7 percent (net of income tax).
The increase in the allowance for doubtful accounts results from historical data that shows that the related credit losses subsequently incurred have been higher than the estimates that Friedman’s used to establish the allowance.
Company executives said they are considering alternatives regarding an interim CFO.
PCAOB Proposes Two Auditing Standards
The Public Company Accounting Oversight Board has proposed a standard that would establish general requirements mandating that auditors should prepare and retain documents in connection with any public company audit. The Sarbanes-Oxley Act requires that registered public accounting firms must prepare and maintain, for at least seven years, audit documentation “in sufficient detail to support the conclusions reached” in the auditor’s report.
The proposed standard, as well as amendments to an interim accounting standard, would apply to engagements completed on or after June 15, 2004. The Board is accepting comments for 60 days.
The PCAOB also voted unanimously to propose an auditing standard that would require registered public accounting firms to expressly state, in each public company audit report, that the audit was conducted in accordance with the standards of the PCAOB. This standard would apply to auditors’ reports dated on or after the later of January 1, 2004, or the 10th day after final approval of this auditing standard. The comment period for this proposal is 21 days.
KPMG Exits Legal Business
The Sarbanes-Oxley Act is having a profound impact on how law firms operate.
Managing partners at KPMG say the firm will stop providing full-scope legal services, and that its associated legal network — KLegal International — will be discontinued. The Sarbanes-Oxley Act restricts the scope of non-audit services to audit clients, particularly legal services, KPMG acknowledged.
Member firms of the KLegal International network are mulling the formation of a new legal grouping that will be completely independent of KPMG and that will work with KPMG member firms, when appropriate, on a non-exclusive basis. The KLegal brand will be discontinued.
Despite the disintegration, KPMG member firms will continue to employ lawyers in parts of their practices, particularly in support of forensic and tax services. “KPMG’s clear strategy going forward is that its member firms will be multi-disciplinary and provide audit, tax and advisory services, with global consistency in terms of quality and delivery,” said Mike Rake, chairman of KPMG International.
Calpine Restates Results
Power producer Calpine Corp. restated earnings downward by nearly $16 million for the nine months ended September 30, 2002, to reflect changes in the treatment of some financing transactions and the adoption of new accounting standards.
Total revenues for the period were cut to $5.56 billion from a previously reported $5.59 billion.
According to company officials, restatement partly reflects a change in the accounting for sale/leaseback transactions related to two power facilities, Pasadena and Broad River. Reportedly, the transactions were treated as sales with operating leases. Proceeds from the sales have been reclassified as debt, and the operating lease payments recharacterized as debt service payments.
Good Day in Court for Tyco’s Former CFO
Wednesday was a good day for former Tyco International finance chief Mark Swartz, who is currently on trial for embezzlement.
Sheila Rex, a prosecution witness and accountant for Tyco, said during her second day of cross-examination that Swartz regularly repaid millions of dollars in company loans and interest every year. As a result, he owed nothing under a loan program that is at the center of his trial.
Rex testified that Swartz regularly paid down his account — which once climbed to $6.5 million — at the end of each business year.