SEC Plans Business Objects Suit

The company gets a Wells notice over its backlog disclosure.
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Business Objects


was falling sharply in Wednesday's premarket session after the data-mining software maker disclosed that the

Securities and Exchange Commission

is likely to file civil charges over the company's disclosure practices.

Shares of the French-owned firm were recently down $1.73, or 8.4%, to $18.97 on Instinet.

In a press release, Business Objects said it received a Wells notice indicating the SEC staff will recommend a civil proceeding against the company, unless it can convince it otherwise. The complaint will focus on Business Objects' practice of not disclosing its backlog of unshipped orders, the company said.

Backlog issues became a sore spot with Business Objects investors when the company announced first-quarter earnings that missed Wall Street estimates by a wide margin, sending the stock into a one-day, 23% plunge that has never been made up. The stock is currently hovering around its 52-week low of $18.85.

While the company's deferred revenue treatment has been mentioned in several shareholder lawsuits brought since the April 29 earnings miss, backlog itself is not necessarily a hallmark of software company earnings disclosure. The company said the SEC complaint won't allege revenue-recognition issues.

"The company believes its disclosures are compliant with the security laws and are consistent with industry and general practice with respect to disclosing backlog," Business Objects said Tuesday. "The proposed action would not assert claims under the antifraud provisions of the securities laws. None of the company's officers or directors would be named as defendants in the matter."