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US watchdog shows its teeth

Financial Times: US watchdog shows its teeth

“Shell”; “Parmalat”; “Enron”

By Emiliya Mychasuk in London

Posted 30 July 04

The Securities and Exchange Commission, the US chief regulator, is set to chalk up two important settlements this week alone, as a result of a string of probes into accounting related issues.

Ahead of the $120m settlement with Shell announced on Thursday in which the company neither admitted nor denied wrongdoing, the bankrupt Italian dairy company Parmalat also this week agreed to an overhaul of its corporate governance as part of a deal that will eventually allow it to emerge from its restructuring next year.

Last month, the US information systems supplier Symbol Technologies paid $37m to settle an inquiry involving what the SEC described as “numerous fraudulent accounting practices and other misconduct that had a cumulative net impact of over $230m on Symbol’s reported revenue and over $530m on its pre-tax earnings.”

Also last month, the SEC collected $10m to go to injured investors in software company i2 Technologies. The regulator claimed that i2 had misstated about $1bn of software license revenues, including over $125m of revenues that it should never have recognized, over a nearly five-year period that ended in 2002.

In May, Lucent Technologies paid a $25m penalty to settle an SEC charge of $1.1bn in accounting fraud. The SEC complaint alleged that Lucent fraudulently and improperly recognized approximately $1.148bn of revenue and $470m in pre-tax income during its fiscal year 2000

Still on the SEC’s “to-do” list is the two year old investigation of Qwest’s accounting practices. The SEC and Justice Department both began investigating Qwest in 2002 for alledgedly inflating revenue.

The SEC has already charged Michael Felicissimo, the former chief financial officer of Qwest Wireless, with refusing to restate improperly recognised revenue of $112m. Two former Qwest managers were acquitted of fraud charges in April and a third pleaded guilty to accessory to wire fraud. A fourth faces a second trial in October after the jury failed to reach a verdict in the case.

Among the most high-profile settlements over the past year was with Vivendi Universal and its former chief executive Jean-Marie Messier. Mr Messier was banned from serving as a director or officer of a public company for 10 years and gave up €21m in unauthorised severance payments. The “golden goodbye” money was impounded by the SEC using new powers granted to it under the Sarbanes-Oxley Act, and Vivendi agreed to pay a $50m civil penalty.

Enron has proved one of the greatest success for the SEC in recovering money via settlements. Among the investment banks and financiers to pay out as a result of their involvement in the collapse of Enron, JP Morgan Chase and Citigroup have together paid $305m, and Merrill Lynch and CIBC agreed to pay $80m each.

These settlements were all achieved with the usual rider that the parties involved neither admitted nor denied any wrongdoing.

Since it filed for bankruptcy in July 2002, US telecoms company MCI is also among those to have struck a deal with the SEC to revive itself. Worldcom paid a settlement of $2.25bn and agreed to an extensive programme of remedial action.

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