About 20 Southland Firms Target of SEC

The Securities and Exchange Commission is investigating about two dozen Southern California companies on matters ranging from insider trading to filing inflated earnings reports, SEC officials said Thursday.

Irving Einhorn, head of the SEC’s Los Angeles office, said about 20 companies are being investigated for what he termed “financial chicanery” in their public financial reports.

Another handful of firms are under scrutiny because of allegations of insider trading, Einhorn said, adding that “there are some recognizable names and it will make for some interesting reading” when the probes are completed. (Federal securities laws forbid investors from trading and profiting on inside information that isn’t available to the general public.)

Einhorn declined to name the firms under investigation, adding that it will be at least three months before the SEC takes action. The most egregious cases will be referred to the U.S. attorney’s office for criminal prosecution, he said.

The investigations mark a change in direction for the Los Angeles office of the SEC, which has focused largely on investment fraud and unregistered securities.

“I don’t remember the last time this office pursued an insider-trading case,” Einhorn said.

A major focus of the probe, SEC officials said, is on small computer companies whose stocks are traded over the counter.

“We’re talking about (computer) hardware and software companies whose products have become obsolete” and who try to maintain stock prices by reporting regular profit increases, Einhorn said.

Another ploy, the SEC official said, is merging a private company into a public “shell” firm and then inflating the value of the new company in the income statements.