Duke Saw Slowdown but Kept Mum, Critic Claims

That sudden turnabout, coupled with more recent setbacks, triggered sharp declines that have left Duke's stock trading at 12-year lows. The stock shed 9 cents to close Friday at $14.15, more than 50% below October 2001 levels.

Numbers Game

Stone's concern about Duke's accounting had been building for years. And that concern is clearly reflected in emails -- coupled with internal correspondence and forecasting documents -- that Stone shared with regulators and, more recently, TheStreet.com.

In an email dated Oct. 4, 2001 -- 12 days before Duke released third-quarter results to the public -- Stone told the Securities and Exchange Commission that Duke had identified steps to intentionally trim its third-quarter earnings from $1.11 to $1 a share. He was particularly troubled by Duke's plan to suddenly "pre-fund" three years' worth of contributions to the Duke Foundation, a charitable organization run by employees of the company itself.

"There may be a valid justification for pre-funding a charitable activity such as this from an accounting standpoint," Stone says. "But I'm not aware of what that justification would be."

Robert Lipe, KPMG Centennial Professor of Accounting at the University of Oklahoma, saw no problem with booking the big donation -- if the company had already committed to contributing that particular amount. He was more troubled by the idea of a company taking specific steps to shave its earnings in general.

"Does that sound somewhat disingenuous?" Lipe asked. "It's not exactly the way I'd like to put my accounting numbers together."

Stone apparently wasn't the last person troubled by the foundation charge. In a January follow-up to the SEC, Stone said other employees questioned the multiple-year charity funding that, in the end, was booked in the final quarter of 2001. After his colleagues allegedly mentioned possible "earnings management," Stone stepped forward and asked what Duke's outside auditors would think.