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IBM Settles SEC Securities Probe

IBM settled its case in which the U.S. Securities and Exchange Commission (SEC) accused the company of misleading investors during a 2005 investor conference call.  IBM told financial analysts the company would report stock options as a financial expense in future financial statements.  The company went on to say it expected first-quarter earnings to be reduced 14 cents per share and reduce full fiscal year earnings by 55 cents per share, according to the SEC.

In reality, IBM really forecasted the stock options expenses to reduce earnings by a total of 10 cents per share and only 39 cents for the fiscal year.  While most financial analysts were able to adjust estimates properly, others accused IBM of wrongly making them believe the impact of the stock options expenses to be larger than expected.

"The facts here are particularly troubling because the disclosure decision was driven, in part, by management's perception of how the news would be interpreted by analysts," said Scott Friestad, SEC associate director of enforcement.

IBM's stock price dropped 8 percent after the company announced its earnings.

The SEC declined to penalize IBM -- instead making the company promise not to violate federal financial reporting regulations in the future.