IBM Violated Rules on Options But Will Not Be Fined, SEC Says
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Wednesday, June 6, 2007
An investigation of IBM by the Securities and Exchange Commission ended yesterday without penalty, though the government found that the company misled analysts about employee stock option expenses in 2005.
The SEC said IBM's conduct violated federal reporting rules but stopped short of finding that fraud was committed. It imposed no fine.
Nine days before IBM released its quarterly earnings in April 2005, Chief Financial Officer Mark Loughridge indicated that if the company had been accounting for options as an expense a year earlier, the cost would have been 14 cents a share. Loughridge indicated that the 2005 quarter would be similar.
The cost of expensing options was 10 cents a share.
The difference mattered when IBM said its first-quarter profit was 84 cents a share. Analysts had been expecting 90 cents. Some analysts suggested that IBM misled Wall Street about the options figure to mask disappointing results.
IBM agreed to "cease and desist" from any future violations. The company neither admitted nor denied wrongdoing.
