The US government has set a deadline of August 14 for many of the nation’s largest companies to submit sworn statements from their chief executive and chief financial officers guaranteeing the accuracy of recent financial reports, in an unprecedented move to help restore investor confidence.
The election-year wave of business scandals has driven the market down to record lows and threatened political damage to the White House and President George Bush’s Republican Party.
It helped speed through Congress the most far-reaching government crackdown on business fraud in 70 years, which Bush eagerly signed into law on Tuesday as he promised a ‘‘hard time’’ for corporate wrongdoers.
Already, the administration has urged companies to file the statements before the deadline set by the Securities and Exchange Commission. By yesterday, 37 were listed as having done so, including Amazon.com, American Airlines parent AMR, Federal Express, Oracle, PepsiCo, Southwest Airlines and Texas Instruments.
The order, issued on June 27 - the day after the agency filed civil fraud charges against WorldCom for having disguised nearly dlrs 4 billion (€3.98bn) in expenses - sent a seismic wave through corporate America.
‘‘It has shaken people up,’’ said Georgetown University securities law professor Donald Langevoort, a former special counsel at the SEC. ‘‘I wouldn’t want to be the CEO trying to figure things out.’’
CEOs and chief financial officers who falsely certify their company reports could be prosecuted and imprisoned, SEC Chairman Harvey Pitt has warned.
Treasury Secretary Paul O’Neill has said an ‘‘avalanche’’ of quick filings would help demonstrate that most companies have been honest with investors.
But the filings also may reveal that some companies inflated earnings in earlier reports and are now revising them downward. Already, Denver-based Qwest Communications, under investigation for its accounting of dlrs 1.1 billion (€1.01bn) in revenue, has said it discovered errors in its 2000 and 2001 reports.
New disclosures of irregularities could deepen anxiety among investors, who already have seen savings evaporate during more than two months of punishing losses on Wall Street.
Enron started the string of corporate scandals when it collapsed into bankruptcy in December. In later months, companies including Kmart, WorldCom - the biggest bankruptcy - and another big telecom concern, Global Crossing, have trooped into bankruptcy court seeking protection from creditors.
The SEC is investigating dozens of big companies for accounting problems. Arthur Andersen was convicted of criminal charges for shredding Enron audit documents, and executives of Adelphia Communications and WorldCom were led off in handcuffs.
‘‘I do believe there are going to be significant restatements’’ of earnings, Federal Reserve Chairman Alan Greenspan said last month, saying they were unlikely to damage the economy.
If the stock market on August 14 is higher than now and there are lots of earnings revisions, ‘‘the market could be vulnerable to a pullback’’, said Alfred Goldman, chief market strategist at brokerage AG Edwards in St Louis. AG Edwards itself is on the SEC’s list of 947 companies - all with annual revenues exceeding dlrs 1.2 billion that fall under the new requirement.
The market’s reaction also will depend on which companies admit errors, Goldman says.
On the plus side, the CEOs’ statements mean Wall Street will get a torrent of earnings reports that can be assumed to be clean.