The Securities and Exchange Commission is debating whether to sue IBM Corp over a 2000 deal it made with Fortune 500 retail chain Dollar General Corp, which is itself under investigation over three years of restated accounts.
IBM said yesterday that it has received a so-called Wells Notice from the SEC, which means SEC staff may recommend the Commission sue. An IBM employee the company did not name has also received a Wells Notice.
The SEC is considering recommending that the SEC bring a civil action against IBM for possible violations of the US securities laws… by participating in and aiding and abetting Dollar General’s misstatement of its 2000 results, IBM said in a statement.
An IBM spokesperson told ComputerWire: We will be given the opportunity to provide our side of the story in response to this Wells Notice. We continue to cooperate with the SEC. It was not clear if the firm will have the chance to avoid a lawsuit.
IBM disclosed the existence of an investigation last June, which knocked four points off its share price the following day. The investigation centers on a deal between Dollar General and IBM’s Retail Stores Solutions unit.
According to IBM, the single transaction in question involved the sale of $11m of used equipment to Dollar General as part of a replacement equipment deal in Dollar General’s 2000 fourth fiscal quarter.
That deal came under investigation following a separate investigation of Dollar General, which in early 2002 restated over two years of financial results. Dollar General paid $162m to settle a restatement-related shareholders lawsuit in 2002.
The IBM spokesperson said that the Wells Notice does not relate to a separate SEC investigation into IBM’s 2000 and 2001 revenue-recognition practices with regards to these types of transaction.
It also has nothing to do with IBM’s latest financial controversy, which relates to the alleged use of bribery to secure government contracts in South Korea and which is subject to Korean criminal investigations.
IBM could not immediately comment on this matter, but the company reportedly confirmed earlier this week that the SEC and Department of Justice have expressed an interest in the Korean scandal, while not yet escalating it into an official probe.
This article is based on material originally produced by ComputerWire.