Updated from 6:05 p.m. EDT
While a handful of corporate executives wouldn't attest to the accuracy of their firm's financial results, the vast majority had sworn under oath by late Wednesday that their numbers were correct.
Securities and Exchange Commission hasn't published all the data on its Web site yet but of the 700 companies required to certify their financial statements by Aug. 14, roughly 660 had done so as of 6 p.m. EDT. The SEC has yet to review and clear all the certifications, and another 250 companies have yet to file because they do not work on a calendar fiscal year.
"Hopefully, this will restore confidence as people realize that not every corporate officer in America is a crook, and that creating false financials is an aberration," said Morton Pierce, chairman of the M&A law group at Dewey Ballantine.
Still, Pierce said that the certifications wouldn't translate into more earnings or a necessarily better company. "We're slowly recovering from a recession, and that's what's going to dictate stock prices," he said.
Some observers have questioned the value of the SEC certifications because chief executive officers and chief financial officers are required to certify "to the best of my knowledge" that their financial results are accurate. Given the difficulty in proving what someone knew and when they knew it, lawyers say it could be hard to prosecute an executive who made a false statement.
Meanwhile, much of the accounting gimmickry that has taken place in recent years has actually been perfectly legal under generally accepted accounting principles.
"I have found it somewhat ludicrous that all of a sudden people believe that CEOs have not been certifying their results, and now for the first time some law is going to change the greed that very gently pulled them over that line in the past," said Don Hays, president of Hays Advisory.
Still, the psychological importance of the sworn statements shouldn't be minimized. The new rule has forced hundreds of companies to scrutinize their books more closely than ever before, prompting a number of earnings revisions.
AOL Time Warner
(AOL - Get Report)
took a tortuous route to certification. It became apparent why when the company finally took the step shortly before 6 p.m. The company said it was reviewing three transactions at its America Online unit that might have resulted in inappropriate revenue recognition.
In the deals, which totaled $49 million, payment from third parties may have been inappropriately recognized as ad and commerce revenue, the company said. The disclosure came three weeks after federal probes were launched into the unit.
Energy holding company
(GAS - Get Report)
said Wednesday that it would restate first-quarter results and that its CEO and CFO would not certify the firm's 2002 interim results.
Capital One Financial
(COF - Get Report)
(HI - Get Report)
also revised down their numbers. Capital One said it was altering its stock-option-adjusted net income for the past two years because of a calculating error. Household said it would revise numbers downward for the past eight years because of changes to the way it accounts for its credit card business.
announced the delay of its fiscal fourth-quarter and full-year results and late Tuesday
said it would restate several years of financial results but would comply with the SEC requirements.
Although Gerber fell 8% to 1.85 on its news, many of the other companies restating their numbers actually rose Wednesday, surprising analysts who had expected a less-forgiving response from investors. Nicor added 2% to $26.67 while Capital One rose 6% to $31.05 and Household added almost 1% to $38.09. Interpublic was up 8% to $17.06.
For some companies, at least, the bad news already had been discounted. Nicor, for example, plunged to a 10-year low in July following an earnings warning and news of accounting irregularities.
The SEC certifications came on the same day that many publicly traded companies were filing their quarterly statements with the agency. Under the new Sarbanes-Oxley Act, CEOs and CFOs are required to swear under oath that those results are accurate and complete, even if their firms aren't covered by the SEC mandate.
Among companies that still were due to certify their results Wednesday were
United Parcel Service
waited until the last minute to file their statements because they wanted to turn over every stone to make sure there were no bugs crawling beneath it," said Tobias Levkovich, an equity strategist at Salomon Smith Barney.
Under the new laws, officers who make false certifications will face penalties of $1 million and/or up to 10 years in prison if the violation was "knowing," and $5 million and/or up to 20 years imprisonment if the violation was "willful."