By Zachary A. Goldfarb
Washington Post Staff Writer
Saturday, September 29, 2007; D01

Sunrise Senior Living said yesterday that a committee formed by its board to investigate an accounting scandal found that executives did not intentionally manipulate earnings or engage in inappropriate conduct by awarding stock options or trading the company's shares.

The McLean assisted-living provider has said it would restate up to $125 million in earnings as a result of miscalculating profits from joint ventures and the sale of several properties. In May, Sunrise said it was being investigated by the Securities and Exchange Commission for possible insider trading and options backdating after complaints from a major shareholder.

The board-appointed, independent committee said that it found "no evidence of an intention to reach an inappropriate accounting result" with respect to its real estate transactions. It also said it found "no evidence of backdating or other intentional misconduct" in the awarding of option grants and "no evidence that any director or officer who traded in the months prior" to the disclosure of the earnings restatement had "material non-public information."

The company, which has not filed timely financial reports since March 2006, is working to gets its books in order to prepare for a sale. The company announced in July that it would solicit potential buyers in response to pressure from its biggest investors, who are dissatisfied with the share price.

A few weeks ago, Sunrise announced it had settled a lawsuit with one of its investors, New York hedge fund Millennium Partners, by agreeing to hold an annual meeting in October and naming a Millennium-backed representative to its board. But yesterday, another major investor, the pension fund of the Service Employees International Union, sued to stop the Millennium settlement, saying it prevents shareholders "from doing anything at the upcoming annual meeting other than rubber stamping the selection."

Sunrise last week disclosed that former chief financial officer Bradley B. Rush is suing the company, claiming that it fired him in May in retaliation for his uncovering improper accounting practices. A Sunrise spokeswoman called the allegations "nonsense." A few days before disclosing the lawsuit, the company announced the hiring of a new chief financial officer, Richard J. Nadeau, a former Mills executive who helped steer the Chevy Chase mall developer through an accounting restatement and sale.

The special committee, whose members the company has not named, is expected to issue a final report in December. The committee is still evaluating how the company runs its accounting. It is being assisted in its investigation by the law firm WilmerHale and accounting firms FTI Consulting and Huron Consulting Group.

A Sunrise spokeswoman did not return calls seeking comment last night. The stock closed yesterday at $35.37, down 7 cents.