Most Firms Certify Books

Executives of most large U.S. companies vouched for their firms’ financial results, meeting a much-anticipated federal deadline Wednesday.

The declarations by top managers helped to stoke a stock market rally, as a feared wave of earnings restatements by major companies didn’t materialize.

Executives of a relative few companies said accounting problems prevented them from certifying their results, but it appeared that most of those firms already were known to be facing financial probes by regulators.

As hundreds of companies filed the required documents with the Securities and Exchange Commission in Washington, the Dow Jones industrial average jumped 260.92 points, or 3.1%, to 8,743.31.

That raised hopes that investor confidence would be buoyed after a series of major accounting scandals this year that drove Wall Street to five-year lows in July.

Still, the unprecedented move by federal regulators to demand the financial certifications--which chief executives and chief financial officers were required to sign under oath--failed to erase all doubts about the veracity of corporate America’s books.

The SEC ordered the certifications by the 947 largest U.S. companies in late June, after telecom giant WorldCom Inc. shocked Wall Street by reporting $3.9 billion in accounting errors--a financial scandal that capped months of revelations of accounting irregularities at such companies as Enron Corp., Global Crossing Ltd. and Adelphia Communications Corp.

Observers said there was no assurance that accounting problems wouldn’t be revealed by more companies, despite the threat of criminal charges against executives if their certifications are in error.

“Does anyone doubt that [WorldCom’s Bernard] Ebbers or [Enron’s Jeffrey] Skilling would have signed this statement if it had been in effect earlier?” said Al Meyerhoff, a partner at Milberg Weiss Bershad Hynes & Lerach, the law firm representing Enron investors in their class-action lawsuit against the company.

Nonetheless, the absence of new financial bombshells Wednes- day helped trigger a rally on Wall Street.

“We’ve all waited for months for the next shoe to drop,” said Shelly Meyers, head of Meyers Capital Management in Beverly Hills. “If nothing else, this gives investors a chance to breathe a sigh of relief that the worst of this is behind us.”

The SEC rule required top managers at 695 U.S. companies to file their documents by 5:30 p.m. EDT Wednesday. The rest of the companies on the list face deadlines in the next few months. The dates were staggered based on companies’ fiscal reporting periods.

By late Wednesday, about 475 of the total 947 companies had filed their certifications, according to the SEC’s Web site. It appeared that many others also had complied but had not yet made it into the official tally.

The SEC said it may not release a complete list of firms that filed--and name any that did not--until Monday. Companies had until the deadline Wednesday to request automatic five-day filing extensions.

Also, the SEC said it wouldn’t know until next week whether the certifications met the exact wording requirements. Executives were required to sign forms stating that to the “best of [their] knowledge” their firms’ recent financial results did not contain “an untrue statement of a material fact” and did not omit a material fact.

The certifications were expected to cover 2001 financial statements and results of this year’s first half.

The certification requirement set off a scramble in corporate America in late June, as executives were forced to redouble efforts to check accounting procedures and the accuracy of their finances.

“Everybody has been worried about having a black mark against them,” said Edward Rhyne, a securities attorney at Gardere Wynne Sewell in Houston.

The process was made even tougher by accounting reform legislation signed July 30 by President Bush, ordering a second set of certifications by Wednesday.

The law requires almost all public companies operating on calendar-year schedules to sign a financial certification. That created headaches for many smaller firms, which were exempt from the SEC order but now had only two weeks to comply with the new law.

The SEC said companies whose managers who did not file the certifications could face enforcement actions, though it isn’t clear what penalties the agency might order.

However, most observers agreed that the more immediate consequence for a company that simply failed to file would be a plunge in its stock price as nervous investors headed for the exits, fearful that the firm’s books were fraudulent.

The accounting reform law also carries explicit criminal penalties of as much as $5 million in fines and 20 years in prison for executives who intentionally file false statements.

To reduce their legal liability if accounting wrongdoing were exposed in the future, many CEOs required executives under them to file in-house certifications attesting that their work was accurate.

In part because of the time involved in that process, only about 300 companies had filed certifications by Tuesday.

The delays raised some fears that many companies were discovering wrongdoing. But corporate attorneys said executives wanted to show they were doing everything possible to verify their books.

“People wanted to be sure they did it right,” said Paul Gerlach, a partner at Sidley Austin Brown & Wood in Washington.

The result was a surge in filings Wednesday. “They’re flying in,” said John Nester, an SEC spokesman.

Given the threat to their stocks, companies that don’t meet the SEC’s demands are likely to be hit with lawsuits from shareholders, experts said.

“There will undoubtedly be a lot of litigation,” said Samuel J. Winer, a securities-law partner at Foley & Lardner in Washington.

As of Wednesday afternoon, however, only a handful of companies had formally announced that they would not submit certifications. Many of them previously had disclosed accounting problems.

For example, WorldCom, Global Crossing, Qwest Communications International Inc. and Dynegy Inc. had said they wouldn’t file certifications because they are in the middle of earnings reviews. WorldCom and Global Crossing are in bankruptcy proceedings.

Nicor Inc., a natural gas company, said Wednesday that both it and the SEC are reviewing its accounting and that its executives therefore could not certify 2002 results.

Some companies restated earnings before complying with the deadline, but there was no huge wave of revised reports.

Media giant AOL Time Warner Inc. said Wednesday that its America Online unit may have misstated revenue by $49 million in the last two years, but it called the sum insignificant, and the company’s executives said they filed documents with the SEC certifying the firm’s results overall.

Interpublic Group, a New York-based advertising firm, had to delay its quarterly earnings report to Tuesday after an internal review found $68.5 million that had not been properly expensed.

The company’s executives said they filed certification documents with the SEC after making the restatement. The firm also said it had “strengthened certain control processes in order to prevent this situation from recurring.”

Financial company Household International Inc. restated earnings since 1994, reducing previously reported results, because of changes in how it accounted for certain costs, the firm said. After the restatement the company’s officers certified its results.

New auditors hired in March encouraged the company to make the accounting change, Household said. “Different auditors have different views,” Megan Hayden, spokeswoman for Household, said Wednesday. “We want to err on the side of conservatism.”

Household’s shares rose slightly despite the restatement news.

At tiny Humboldt Bancorp in Eureka, Calif., officers said the bank was unable to meet its certification deadline under the accounting reform law after discovering it would have to restate earnings for 1999-2001. Scrutiny of some employee contracts during the sale of assets in July led to the decision to restate results, the firm said.

Humboldt, which has 24 branches, said it would file for an extension to certify its numbers.

“This certification issue is very serious,” said Patrick Rusnak, chief financial officer of Humboldt. “Anything that is accounting-related gets painted with the same brush. For us this is the last thing I would want.”