SEC says IBM misled investors

IBM Corp. misled investors by overestimating the effect of stock option expenses on the company’s earnings in 2005, the Securities and Exchange Commission said Tuesday.

The agency made the statement as it reached a settlement with IBM in which the company agreed not to commit future violations of disclosure rules.

The SEC, however, didn’t fine IBM, and the company didn’t admit or deny the SEC’s findings.

“The facts here are particularly troubling because the disclosure decision was driven, in part, by management’s perception of how the news would be interpreted by analysts,” said Scott W. Friestad, SEC associate director of enforcement.

In an April 5, 2005, conference call, IBM led analysts to believe that the company expected stock option expenses to reduce first-quarter earnings by more than it actually believed, the SEC said. Analysts relied on the higher expense numbers to forecast the company’s earnings for the quarter.

IBM eventually reported profit for the quarter that was less than the analysts had forecast. The earnings shortfall would have been bigger had IBM given analysts a more accurate reading on option expenses. Some analysts suggested IBM wanted to cushion the disappointing results and hide weakness in the business.

IBM issued a statement saying the SEC’s order contained no finding that the firm committed securities fraud. The company didn’t address details of the case.