SEC Plays the Trump Card on Pro Forma Earnings

If you thought Enron was the only earnings scandal on regulators' radar screens, Wednesday's events showed otherwise.

In a case that may prompt companies to be more conservative in how they present their quarterly results, the Securities and Exchange Commission said it had charged Trump Hotels & Casino Resorts (DJT Quote) with making misleading statements in a 1999 earnings release.

The case marks the first time that the SEC has taken issue with a specific company's use of pro forma reporting -- the widespread practice of showing what results would have been had it not been for certain expenses. Considering how widespread and inconsistently applied that practice has been, particularly among the technology companies whose shares are more richly valued in the stock market than any others, reverberations from the case could be felt in Silicon Valley and on Wall Street.

Winning Ways

The crux of the Trump Hotels case is that the company said in its third-quarter 1999 financial release that it had earned $14 million, or 63 cents a share, once you excluded a one-time loss of $81.4 million from the closing of its World's Fair Casino. So far so good: Excluding losses from, say, a tornado ripping through your factory is a widely accepted practice, even if it doesn't adhere to generally accepted accounted principles (GAAP). ...