SEC Investigating Claims Raytheon Hid Cost Overruns
Raytheon Co. is being investigated by the Securities and Exchange Commission amid allegations that it hid cost overruns at a construction unit sold to Washington Group International Inc. last year.
Washington Group filed a lawsuit in March to cancel the sale and has said it may seek bankruptcy protection because of higher-than-expected expenses on some projects. Raytheon, the third-largest U.S. defense contractor, has denied the allegations. The company said it received a subpoena from the SEC about the unit.
Raytheon’s accounting practices have been the subject of SEC review in the past. Last year, the company restated results for the three previous years to change how it accounted for some revenue. Washington Group, formerly known as Morrison Knudsen, also received a subpoena from the SEC, said Brent Brandon, a spokesman for the contractor.
“It’s somewhat unusual for the SEC to act in what appears to be a private dispute, but if there are significant accounting or public policy issues involved, an investigation is certainly legitimate,” said Harvey Goldschmid, a professor of law at Columbia University and a former SEC general counsel.
The SEC investigation “does not suggest” that Raytheon has violated any laws or regulations, the Lexington, Mass.-based company said. David Polk, a spokesman for Raytheon, declined to elaborate on the probe.
Washington Group was required to provide the SEC with documents to verify the company’s claims that Raytheon misled it about the financial status of the unit, according to the subpoena. Washington Group also must provide information from PricewaterhouseCoopers, which served as auditor for both companies at the time of the sale.
PricewaterhouseCoopers spokesman David Nestor declined to comment on the Raytheon probe, as did John Heine, a spokesman for the SEC.
Raytheon’s widely traded Class B shares fell $1.90, or 6%, to close at $27.75 on the New York Stock Exchange. Shares of Washington Group, the fourth-largest U.S. construction company, fell 11 cents, or 10%, to close at 98 cents on the NYSE. The stock of the contractor has tumbled 88% since the company said March 2 that it was considering bankruptcy protection.
Washington Group bought Raytheon’s engineering and construction business in July for $53 million and assumed $450 million in liabilities. The Boise, Idaho-based company defaulted on a $1-million loan payment that was due April 7.
Raytheon took a first-quarter charge of $221 million to complete work on two construction projects halted by Washington Group that Raytheon had guaranteed.
