BearingPoint Inc. said yesterday that the Securities and Exchange Commission has launched an informal investigation into its accounting practices and that its financial statements dating as far back as mid-2002 could be wrong.
The McLean consulting firm warned investors that it is facing a potential cash crunch that could push it into insolvency.
The company has been plagued by accounting problems and said yesterday in a filing with the SEC that it does not know when it will be able to submit its audited financial results for 2004.
BearingPoint said it received a letter from the SEC last Wednesday informing the firm of the investigation and asking for documents related to its internal control procedures. The new SEC query is in addition to a separate subpoena issued by the SEC related to fraudulent software sales conducted by a former partner company, Peregrine Systems Inc.
The company said it expects to record a loss for the three months ended March 31 and for 2005.
In its filings, the firm spelled out steps it will take to continue to pay its bills. Its cash balance was about $200 million as of March 31, according to the filing, but the company added that the amount was not adequate to meet its "expected near-term cash needs." The company said it is planning a $250 million debt offering that will be used to replace its existing line of credit and for general corporate purposes but cautioned that it could still run out of money to run the business.
"There can be no assurance that any of these strategies could be effected on satisfactory terms, on a timely basis, or at all, which could result in our seeking protection under insolvency laws," the company reported.
In its filings, BearingPoint laid out a litany of internal control problems, including inadequate reviews of lease agreements, inadequate training on financial accounting systems, and insufficient attention to accounting and fraud risks.
BearingPoint said it will take a charge of between $250 million and $400 million as it restructures its operations in Europe, the Middle East and Africa. BearingPoint said it is now in the process of closing its Peru and Thailand offices and is considering shuttering its practices in several other countries. The firm also said it expects to take a $55 million to $65 million charge during 2005 as it reduces office space, and a $13 million charge for severance and termination costs.
Last month, BearingPoint named Harry L. You its new chief executive, replacing Roderick C. McGeary, who had held the position on an interim basis since November, when then-chief executive Randolph C. Blazer abruptly left the firm. The company said yesterday that in the midst of the executive overhaul, nine of the top 20 other senior managers have left or are leaving BearingPoint.
A company spokesman declined to elaborate on the filing.
"There are a lot of incremental data points here that are all quite negative," said Joseph A. Vafi, an analyst with Jeffries & Co. "They are focused on the right thing, getting to the roots of these problems, keeping the revenue in tact . . . but the clearly have challenges."
Shares of the company's stock closed at $7.77 yesterday, down 10 cents.