SEC burdened by probes

July 6, 2001 Posted: 1123 GMT

NEW YORK (CNNfn) -- The Securities and Exchange Commission's docket of firms under investigation for accounting fraud has ballooned to such mammoth proportions that the agency resources are stretched thin struggling to cope with the stockpile of cases, according to a published report Friday.

The SEC has some 260 accounting investigations under way, and a growing number of these probes -- currently about 15 percent -- are focused on companies from the nation's top 500, the Wall Street Journal reported.

"If we had nothing else to do, the accounting investigations alone could keep us busy for the next five or 10 years. The size and magnitude are crushing," the paper quoted Richard Walker, SEC's enforcement chief as saying.

The agency's leading source of new investigations is the increasing number

of restated financial reports that grew to 233 in 2000, twice the number in 1997, the Journal said, citing Arthur Andersen. Andersen settled an accounting fraud case with the SEC last month for $7 million, the largest civil penalty ever levied against a Big Five accounting firm.

Among the companies involved in accounting scandals is Xerox Corp. (XRX: Research, Estimates), which faced an SEC probe after the copier maker admitted it "misapplied" accounting rules -- including using a $100 million reserve to offset unrelated expenses -- while restating its results for the past three years, the WSJ said.

ConAgra Foods (CAG: Research, Estimates) was recently added to the agency's list after admitting that its fertilizer and chemical subsidiary recorded fictitious sales.

Securities regulators are concerned that accounting violations may be more pervasive than data suggest. "Is this an ice cube or an iceberg? There's definitely something there below the water line, " the report quoted Lynn Turner, SEC's chief accountant, as saying.

That concern is echoed on Capitol Hill, where lawmakers are calling for more SEC resources to combat fraud, the paper said.

The cooldown in the IPO market, however, has freed some of its resources, which the SEC is diverting to scrutinizing corporate annual financial reports for cases of fraud. Such cases typically take a couple of years to prepare and often rest on hard-to-prove allegations, the report said.

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