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...."

http://www.dallasnews.com/sharedcontent/dallas/business/stories/100302dnbuseds.7948f.html

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,
zf