Heat's on for CEOs as big deadline nears
By Marcy Gordon
Associated Press
WASHINGTON — In a year of accounting scandals, huge bankruptcies, handcuffed company executives, horrified investors — and the conviction of accounting firm Arthur Andersen — Aug. 14 can be considered a day of reckoning.
That's the government's deadline for many of the nation's largest companies to submit sworn statements from their chief executive and chief financial officers certifying the accuracy of recent financial reports — an unprecedented move designed to help restore investor confidence.
The election-year wave of business scandals has driven the market down to record lows and threatened political damage to the White House and President Bush's Republican Party. It helped speed through Congress the most far-reaching crackdown on business fraud in 70 years, which Bush eagerly signed into law Tuesday as he promised "hard time" for corporate wrongdoers.
Already, the administration has urged companies to file the statements before the deadline set by the Securities and Exchange Commission. As of yesterday, 25 had done so. So far, no early filer has indicated it had to restate its financial reports.
The SEC's order, issued June 27 — the day after the agency filed civil fraud charges against WorldCom for having disguised nearly $4 billion in expenses — sent a seismic wave through corporate America.
"It has shaken people up," said Georgetown University securities law professor Donald Langevoort, a former special counsel at the SEC. "I wouldn't want to be the CEO trying to figure things out."
For CEOs, "It's going to be increasingly difficult to say, 'I relied on the auditors,"' said Thomas Sjoblom, a partner at law firm Chadbourne & Parke in New York who was an SEC attorney in the 1980s and 1990s.
CEOs and chief financial officers who falsely certify company reports could be prosecuted and imprisoned, SEC Chairman Harvey Pitt has warned.
Treasury Secretary Paul O'Neill has said an "avalanche" of quick filings would help demonstrate that most companies have been honest.
But the filings also may reveal that some companies inflated earnings in earlier reports and are now revising them downward. Already, Denver-based Qwest Communications, under SEC investigation for its accounting of $1.1 billion in revenue, has said it discovered errors in its 2000 and 2001 reports.
Qwest, the biggest local phone service provider in 14 Western states, has not yet filed the new statements.
New disclosures of irregularities could deepen anxiety among investors, who already have seen savings evaporate during more than two months of punishing losses on Wall Street.
Enron started the string of corporate scandals when it collapsed into bankruptcy in December. In later months, companies including Kmart, WorldCom — the biggest bankruptcy ever — and another big telecom concern, Global Crossing, have followed suit.
The SEC is investigating dozens of big companies for accounting problems, Arthur Andersen was convicted of criminal charges for shredding Enron audit documents, and executives of Adelphia Communications and WorldCom were led off in handcuffs.
"I do believe there are going to be significant restatements" of earnings, Federal Reserve Chairman Alan Greenspan told House members last month, saying they are unlikely to hurt the economy.
What about their effect on a jittery stock market?
If the market on Aug. 14 is higher than now and there are lots of earnings revisions, "The market could be vulnerable to a pullback," said Alfred Goldman, chief market strategist at A.G. Edwards Inc. in St. Louis, which is on the SEC's list of 947 companies — all with annual revenues exceeding $1.2 billion — that fall under the new rule.
The statements and earnings reports will be filed on a rolling basis. Companies that use a calendar year for reporting results — must submit them by the close of business on Aug. 14. The rest, using fiscal-year reporting, need not file until the first date they are required to submit annual or quarterly reports.
