Companies trying to learn lessons from the current spate of Securities and Exchange Commission accounting probes may have a difficult time doing so, because most enforcement cases are settled with no admission or denial of wrongdoing.
"Companies and individuals will often settle even when a case is extremely defensible," says David A. Zisser, an attorney with Berliner, Zisser, Walter & Gallegos PC, a Denver-based firm. Xerox, for example, agreed in April to restate its earnings, make changes to its board of directors, and pay the largest financial fraud penalty ever against a public company--$10 million--but never admitted to doing anything wrong.
While settling is convenient for executives who want to avoid a drawn-out legal battle, some say the information the SEC publishes subsequent to the case often squelches details of other charges that were negotiated away in reaching a settlement.
"You have people who read the limited facts and don't really see all the violations that occurred," says Gary Illiano, a former SEC enforcement official and now regional director for Grant Thornton LLP. "The fact that someone gets sanctioned for not updating [a registration form] may be completely incidental to the real case, which may have been much more serious."
Illiano says the lack of a clear precedent makes it more difficult for the accounting firm to rein in potentially abusive accounting practices. "People will come to us with issues," he notes, "and we'll say, 'Be careful, the SEC is going to come after you on that,' and they'll say, 'No they won't, we read the [litigation] release.'"
Others argue that the litigation releases, administrative proceedings, and complaints that the SEC typically publishes are enough to keep companies out of trouble. "Litigation releases don't really have any legal precedent, but they do articulate the com-mission's current thinking," says R. Steven Aronica, the director of forensic accounting at Milberg Weiss Bershad Heinz Lerach. "When the SEC publishes [them], you can feel confident that the best and brightest have weighed in on the matter and are in agreement."
The SEC contends it is continually increasing disclosure, recently linking its detailed court complaints to the litigation releases posted on its Web site, for example.
Still, don't expect to get the full story through official channels. Microsoft settled initial allegations of keeping cookie-jar reserves on the relatively benign charge of failing to keep accurate records, meaning that the precise actions that attracted the SEC's attention are likely to remain shrouded.