No. of Recommendations: 1
This is from an article on EDS and its SEC inquiry:

...The purpose of an informal inquiry is to examine any situation that might potentially be a violation of federal securities laws, said Harold Degenhardt, administrator of the SEC's district office in Fort Worth.

Almost all formal investigations begin as informal inquiries, he said, including the probes of Enron Corp. and Tyco International Ltd. The one notable exception involved the accounting scandals at WorldCom Inc., which began as a formal investigation.

Roughly, half of the SEC's informal inquiries evolve into formal investigations.

If securities laws are violated, the SEC has a broad range of disciplinary alternatives. For example, executives may be fined or barred from serving as officers or directors of U.S. public companies.

If the agency finds criminal activity, it refers the cases to state or federal prosecutors.

Some legal experts emphasized that it's hard to know from the outside exactly what the SEC is interested in or how serious any case may be.

"It's always difficult to say what the SEC is thinking," said Amar Budarapu, a partner in the Dallas office of Baker & McKenzie and chairman of the law firm's U.S. securities practice group.

"You shouldn't read too much in any SEC inquiry about where it's going."

John Gavin, president of SEC Insight Inc., a research firm in Plymouth, Minn., said it's barely material whether an SEC proceeding is either formal or informal....

...Still, during an informal inquiry, the staff does not have the power to subpoena documents or to compel anyone to testify. However, if witnesses don't cooperate or if certain records can only be obtained by subpoena, the staff can ask the SEC to issue a so-called formal order of investigation.

"The commission uses informal inquiries fairly frequently, so it's not unusual in the current environment to use these informal inquiries as a first step," Mr. Degenhardt said....

"We try to develop the information on an informal basis because it may be our questions are answered and that is the end of the matter. So why put a company through the trauma when we ultimately conclude it doesn't warrant further action....

Makes me believe there is substance to the accounting problems. Look for the heads-rolling scenario--so the company will likely be replacing the CFO as well as the CEO fairly soon.

Just my airchair predictions,
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.