Tyco Stock Plunges After Word of SEC’s Informal Accounting Inquiry

Tyco International Ltd., which has made more than $30 billion in acquisitions in the last three years, said Thursday that the Securities and Exchange Commission is conducting an informal inquiry into its accounting practices.

Tyco, the world’s biggest maker of electronic connectors, voluntarily disclosed the investigation; its shares tumbled $8, or 22%, to close at $28.25 in New York Stock Exchange trading on Thursday. U.S. volume was 115 million shares, making it one of the 10 most actively traded issues in U.S. stock market history.

Tyco’s shares had already dropped by almost a third since Oct. 12, when analyst David Tice suggested that the company reserves cash when it makes acquisitions and then uses the money to boost earnings. Tyco denied that assertion.

Tice, head of Dallas-based David W. Tice & Associates and a money manager known for betting that certain stocks will fall, was not available for comment Thursday.

In a statement released Thursday, Tyco characterized the SEC inquiry as a way to clear misinformation. The company said it would file its annual report with the SEC as planned Monday for its fiscal year ended in September.

Tyco, which has headquarters in Hamilton, Bermuda, but is run from executive offices in Exeter, N.H., said it was told about the inquiry on Wednesday.

“In light of the recent market activity in our stock, which is not justified by any development at the company, we welcome the opportunity to respond to this request,” Chief Executive Dennis Kozlowski said in a statement. “We remain confident of our accounting methodology, our public disclosures and the continuing strength of our business.”

Kozlowski was not available to comment. The SEC declined to comment.

An informal inquiry means the SEC is conducting interviews and obtaining documents without the use of a subpoena, relying on voluntary cooperation.

Shortly after Tice made his assertions, Tyco held a conference call to deny them. It then held meetings with investors and analysts to review its accounting of acquisitions in detail. Some long-term investors said those meetings helped restore their confidence.

Speculation of “accounting irregularities” at Tyco began to surface on Internet message boards about the same time as Tice’s TV appearance. Kozlowski said in October that Tyco asked the SEC to look into the source of those rumors.

“This investigation is very broad-based; it’s not just accounting,” said John Inch, a Bear Stearns & Co. analyst with a “buy” rating on Tyco. “It’s good news, because it will resolve it once and for all. The shares are trading like Tyco is a broken company, and it’s not.”

Bear Stearns owned at least 578,000 Tyco shares at the end of September, with some of those owned by Bear Stearns Asset Management.