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. Last Updated: 07/27/2016

Regulators Scrutinize IBM Accounts

SAN FRANCISCO -- International Business Machines Corp. on Monday said that the U.S. Securities and Exchange Commission had begun a formal investigation of how the world's largest computer company accounted for some revenue in 2000 and 2001.

Armonk, New York-based IBM said in a statement that it "believes the investigation arose from a separate SEC investigation of a customer of IBM's Retail Store Solutions unit," which sells electronic cash registers and other point-of-sale products.

IBM shares fell almost 3 percent on electronic trading network Instinet after the announcement, which raised the specter of the accounting scandals of Enron, WorldCom and others that have undermined investor confidence.

"This is big news because it goes back to the old accounting scandals that have shaken investor confidence, starting with Enron," said Burton Schlichter, senior market analyst with Lind-Waldock.

The Retail Solutions unit is part of IBM's personal systems division, and IBM does not break out revenue for that unit, spokesman Bill Hughes said.

"The SEC is seeking information relating to revenue recognition in 2000 and 2001 primarily concerning certain customer transactions," Hughes said, declining to name the customer.

The SEC advised the company that it has not reached any conclusions related to this matter, IBM said, adding that it is cooperating with the federal agency.

"IBM believes that its business and accounting policies comply with all applicable regulations," the company said.

A spokesman for the SEC declined to comment on the matter.

"This might prove to be a nonissue and their claims to credibility might be intact, but it's out there, and it's an overhang," said Marty Shagrin, analyst at Victory Capital in Cleveland, Ohio, which owns IBM shares.

IBM's accounting has come under scrutiny over the years, with investors criticizing the company for its lack of disclosure.