The top brass of hundreds of America's largest corporations had to swear by their financial statements yesterday under a government order meant to help end a deep crisis in confidence that has shaken Wall Street.
Chief executives and chief financial officers of about 700 of the 947 companies covered by the sweeping US Securities and Exchange Commission order had to certify their companies' latest results in writing and electronically by day's end.
Certifications were expected to pour into the SEC throughout yesterday, as nervous markets watched for companies that failed to comply. Only about 300 filings had been posted as received on an SEC Web site as of late Tuesday evening.
Investors were being referred by the SEC to its online Edgar filing system (www.edgar-online.com) to check if individual company CEOs and CFOs had filed.
Imposed on June 27 amid a wave of multibillion dollar accounting scandals ranging from Enron Corp to WorldCom Inc, the SEC order was followed a month later by a raft of new laws for companies from Congress.
One of the laws makes CEO and CFO certification routine for all of the roughly 14,000 companies policed by the SEC, so law firms were advising their clients to get in the habit starting now.
Legal penalties for failure to meet the deadline, or for filing a certification that was mistaken or a lie, were not crystal clear. But the SEC said civil and criminal securities fraud laws would apply with possible fines and jail time.
Market punishment for the stock prices of companies that were not in compliance was likely to be swift and certain however, with investors increasingly wary of corporate book-cooking.
Some companies will be allowed to certify after yesterday, due to their non-calendar fiscal years, and the SEC was willing to grant five-day extensions to some firms facing delays.
Fears of a wave of restated results had not materialized, with more than a quarter of filings in, although accounting experts said there was still time for red flags to fly. A few companies were expected not to meet the deadline, such as bankrupt long-distance telephone and Internet traffic carrier WorldCom, which is restating its books after uncovering a US$7.6-billion accounting fiasco in recent weeks.
The CFO of energy trader CMS Energy Corp last week told investors he could not certify its books until they were restated to account for more than US$4 billion worth of sham trades.
Each CEO and CFO must file a separate certification on a standard SEC form. If unable to certify a company's latest 10K annual report and subsequent 10Q quarterly and other statements, the CEO or CFO must tell the SEC why under oath.
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