SEC Probing Press Releases on Pro Forma Profit

Reuters and Bloomberg News

The Securities and Exchange Commission is probing several companies for possible deception in pro forma earnings releases, an agency spokesman said Monday.

"I think it's fair to say several companies are being investigated," SEC spokesman John Heine said. "The number changes all the time."

Pro forma earnings, which exclude items that would normally lower earnings, can be put into news releases even though they do not fall under generally accepted accounting principles in the U.S. Technology-related companies often report such results.

All public U.S. companies must file disclosures with the SEC showing their finances under proper accounting rules. Still, critics say pro forma numbers--often included in news releases days or weeks before an SEC filing--can obscure the real nature of a company's finances.

Heine declined to name the companies that are being investigated by the SEC's enforcement division. An investigation could lead to disciplinary action, such as a fine or censure.

The SEC's chief accountant, Lynn Turner, has called news releases "everything but bad stuff," or "EBS."

"EBS press releases do not present a complete or transparent picture," Turner said in an April speech in New York. "Often they appear to be trying to lead investors away from the real numbers, from real net income and from real cash inflows and outflows."

For example, some releases don't consider interest or the cost of starting new businesses or product lines as real costs paid with real cash, Turner said.

The SEC's examination likely is the first time regulators have considered charges against companies that release cash earnings figures, said David Tice, a manager of the Prudent Bear mutual fund in Dallas.

"It's a great idea. It's past overdue," Tice said. "For these companies to use pro forma earnings and exclude depreciation, interest, charges" is unacceptable.

The SEC also is looking into whether the number of days companies have to file earnings statements after the end of a quarter should be shortened from 45 days.

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