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Sec probing ibm { June 2 2003 } Original Source Link: (May no longer be active)    http://www.washingtonpost.com/wp-dyn/articles/A4913-2003Jun2.html http://www.washingtonpost.com/wp-dyn/articles/A4913-2003Jun2.html IBM Says SEC Probing Its Accounting Reuters Monday, June 2, 2003; 6:50 PM By Duncan Martell SAN FRANCISCO (Reuters) - International Business Machines Corp. on Monday said that the U.S. Securities and Exchange Commission had begun a formal investigation of how the world's largest computer company accounted for some revenue in 2000 and 2001. Armonk, New York-based IBM said in a statement that it "believes the investigation arose from a separate SEC investigation of a customer of IBM's Retail Store Solutions unit," which sells electronic cash registers and other point-of-sale products. IBM shares fell almost 3 percent on electronic trading network Instinet after the announcement, which raised the specter of the accounting scandals of Enron, WorldCom and others that have undermined investor confidence. "This is big news because it goes back to the old accounting scandals that have shaken investor confidence, starting with Enron," said Burton Schlichter, senior market analyst with Lind-Waldock & Co., a division of Refco LLC. The Retail Solutions unit is part of IBM's personal systems division, and IBM does not break out revenue for that unit, said spokesman Bill Hughes. "The SEC is seeking information relating to revenue recognition in 2000 and 2001 primarily concerning certain customer transactions," Hughes said. Hughes said he would not name the customer. The SEC advised the company that it has not reached any conclusions related to this matter, IBM said, adding that it is cooperating with the federal agency. "IBM believes that its business and accounting policies comply with all applicable regulations," the company said. A spokesman for the SEC declined to comment on the matter. "This might prove to be a nonissue and their claims to credibility might be intact, but it's out there, and it's an overhang," said Marty Shagrin, analyst at Victory Capital in Cleveland, Ohio, which owns IBM shares. IBM's accounting has come under scrutiny over the years, with investors criticizing the company for its lack of disclosure. Last year, IBM addressed some of those issues by increasing the amount of information that it provided. But some investors have continued to say that the company has not abandoned the earnings management habits that enabled it to produce quarter after quarter of steady earnings growth under former Chief Executive Louis Gerstner through such methods as share buybacks. James Grant, publisher of Grant's Interest Rate Observer and a longtime critic of Big Blue, said he had not pored over IBM's books recently but found IBM's accounting aggressive when he started focusing on the company in the late 1990s. "We found it aggressive and promotional and questionable and I think it's appropriate that the SEC should be looking into it," said Grant. In April of 2002, the SEC disclosed that it had opened and closed a preliminary inquiry into IBM, but it did not specify the focus of the investigation. Shares of IBM were halted by the New York Stock Exchange on Monday afternoon. In the regular session, the shares fell 62 cents to $87.42, not far off its 52-week high of $90.32. On Instinet, IBM shares fell to $85. (Additional reporting by Doris Frankel in Chicago; and Deepa Babington, Caroline Humer and Franklin Paul in New York) © 2003 Reuters

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