SEC Examining 40 Large Firms for Accounting Fraud

The Securities and Exchange Commission is investigating about 40 large companies for accounting fraud, and many of these inquiries focus on the companies’ top executives, the SEC’s chief law-enforcement official said.

“A lot of the fraud seems to be resulting from executives feeling pressure to beat stock analysts’ expectations,” SEC Enforcement Director Richard H. Walker said in an interview Friday.

The SEC is conducting about 260 accounting fraud investigations, about 2 1/2 times the number of such cases that were filed last year, Walker said.

In last year’s cases, charges were filed against 19 chief executives and 19 chief financial officers, SEC data show.

Among the large companies that have disclosed that they are under investigation are Xerox Corp., ConAgra Foods Inc. and Lucent Technologies Inc.

Walker said the number of investigations of large companies this year represents a big jump over last year, though he said the agency didn’t have an exact count of 2000 probes of major firms.

More than half the SEC cases in which charges were filed recently allege that companies reported revenue in the wrong period, usually in an attempt to inflate lagging quarterly earnings, Walker said.

Accounting executives have said companies often have to interpret dated SEC reporting rules that don’t easily apply to changing business conditions, leaving corporations vulnerable to second-guessing by regulators.

But regulators argue that companies and their auditors may be stretching accounting rules too far simply to appease analysts and investors.

Former SEC Chairman Arthur Levitt, who left the agency in February, made financial fraud the agency’s chief enforcement priority during the last couple of years of his tenure.

Levitt said executives engage in a “game of nods and winks” with analysts in an attempt to prop up their companies’ stock prices.

Walker had said Levitt’s departure wouldn’t affect the agency’s investigative priorities. Last month, the SEC filed fraud charges against Arthur Andersen, which agreed to pay $7 million to settle allegations it issued false audit reports about Waste Management Inc. for five years.

The accounting crackdown comes amid intensifying scrutiny of Wall Street analysts’ power to influence stock prices. The government also is probing how major brokerages allocated hot initial public stock offerings in the heyday of the tech-stock boom of 1999 and early 2000.