Updated from 3:25 p.m. EST

Qualcomm ( QCOM) felt the Enron-fueled fear of investors Friday, based on rumors of a report put out by accounting snoop Howard Schilit's Center for Financial Research and Analysis.

A warning circulated on the Street that Schilit was looking into Qualcomm's royalty revenues as reported in the 10-K annual report filing for the fiscal year ended Sept. 30, 2001.

The stock dropped more than 11% late Friday morning, falling as low as $34.59 before closing at $37.46, a loss of 4.22%.

Apparently, the issue involves complications of an outreach program Qualcomm began in December 2000 that would allow it to take "early stage" company stock, as Qualcomm termed it in Securities and Exchange Commission filings, as payment for royalties.

In 2001, seven companies participated in the program, according to the company. In its most recent 10-K, Qualcomm reports that it accepted $11 million in "equity consideration" (aka stock) in return for royalty payments for CDMA licenses. More problematic, however, is the $9 million in shares Qualcomm acknowledges taking as payment during fiscal 2001 on accounts that were initially to be paid in cash.

In a time of heightened accounting hysteria, stock in a company that was supposed to pay in cash, but apparently could not, most likely will be interpreted as less-than-solid revenue.

Qualcomm responded to the troubles after the market close in a press release. The company explained that its stock dealings were fully disclosed and in accordance with generally accepted accounting principles. It noted that it recorded only $7 million of the $20 million in stock accepted as revenue in 2001, and said it determines the value of that stock on a quarterly basis.

Additionally, the company denied any improper connections between its CFO Tony Thornley and audit committee chief Duane Thelles, and the current auditor, PriceWaterhouse Coopers. Both individuals previously worked at Coopers & Lybrand, but Qualcomm insists that they left that employer before assuming their current roles at Qualcomm.

The wireless technology company has historically been an aggressive investor in companies big and small to spread its code division multiple access (CDMA) technology used in mobile phone networks and handsets alike. Qualcomm has investments in complicated efforts such as Globalstar and NextWave, foreign telephone companies such as Vesper in Brazil, and a number of public and private companies that may be important in the future of wireless calling, such as Handspring ( HAND) and PayPal.

To that end, Qualcomm announced on Jan. 17 it would change the way it reports quarterly results to separate out its investing practices. Results for the newly dubbed Qualcomm Strategic Initiatives unit will be factored out of pro forma earnings and revenues from the company's chipset and licensing business. The issue in question, however, focuses on revenue booked in the Qualcomm Technology Licensing Group.

The Center for Financial Research and Analysis would not comment on the matter.

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