Legal News

Hot-Hitting SEC Settles GE Suit, Picks Up $50M

By Ashby Jones

Early August has been, so far, anything but the dog days for the Securities and Exchange Commission.

Just a day after reaching an agreement with Bank of America in which the bank will pay a $33 million fine to settle the SEC’s lawsuit over bonuses paid to Merrill Lynch execs, the SEC has brokered an even bigger deal with General Electric Co. The company agreed to pay a $50 million fine to settle charges that GE’s 2002 and 2003 financial statements were misleading. Click here for the WSJ story on the GE deal; here for the SEC complaint; here for the consent decree. (Let’s see, five days, $83 million. At this pace, the Commission will have pulled down a quarter of a billion by the time the NFL season kicks off.)

In any event, the GE fine settles a probe that started in 2005 into GE’s accounting procedures, including financial hedges and revenue recognition. In a complaint filed with U.S. District Court in Connecticut, the commission seemed to pull words out of an old bag of tricks, alleging company used improper accounting methods to boost earnings or avoid disappointing investors.

Improper accounting? It feels so 2002! And that might not be a coincidence. The SEC under enforcement chief Robert Khuzami is trying to close cases older than three years unless they are critical to the agency’s program. The goal is to clear out the pipeline so attorneys can work on current cases, although one person familiar with the matter said that wasn’t a consideration in this case.

“GE bent the accounting rules beyond the breaking point,” said Robert Khuzami, in a prepared statement. “Overly aggressive accounting can distort a company’s true financial condition and mislead investors.”

GE agreed to pay the fine without admitting or denying the SEC’s allegations. “We are committed to the highest standards of accounting,” said GE spokeswoman Anne Eisele. “While this has been a difficult and costly process, our controllership processes have been strengthened as a result, and GE is a stronger company today.”

Full post as published by Law Blog - WSJ.com on August 05, 2009 (boomark / email).