IBM is under investigation by the Securities and Exchange Commission for its accounting practices the way it booked sales in 2000 and 2001.
Shares of IBM tanked as much as $2.73 in after-hours trading following the company’s statement shortly after the closing bell.
The shares ended the regular session down 71 cents at $87.33.
Big Blue said the notice of the probe most likely arose from a separate SEC investigation of a customer of IBM’s Retail Store Solutions unit.
This unit sells point-of-sale products such as computer checkout hardware to more than a thousand customers worldwide including Kmart, Gap and Pathmark.
“IBM believes that its business and accounting policies comply with all applicable regulations and is committed to maintaining the highest standards of compliance relating to its financial reporting,” IBM said in a statement.
“We’re in the early stages of the investigation,” said IBM spokesman Bill Hughes. “We quickly notified our board and then disclosed the news [to the public].”
He would not say when the probe was initiated.
The SEC has taken action against other top tech companies including Xerox and Microsoft for their accounting practices. Xerox was forced to issue a $6.1 billion restatement of its equipment revenues.
After the drop in IBM stock following the disclosure, Arne Alsin, manager of The Turnaround Fund at Alsin Capital Management pointed out:
“The market has gone awfully far awfully quick. It may just be looking for excuse to take a little bit off the table. The market should not act so negatively. IBM is making inroads with Linux, IT consulting and chips. They’re hitting on all cylinders.”
Still, “when the Feds come calling, people head for the doors,” William Batcheller, a manager for National City Corp, which owns 2.7 million IBM shares, told Bloomberg News.
Armonk, N.Y.-based IBM, the largest technology provider and country’s No. 8 company, has been dogged by other SEC investigations.
Last year, the SEC looked into how it accounted for income it got from the sale of a business to communications equipment manufacturer JDS Uniphase.
The SEC ended the investigation without taking any action.
In early 2000, IBM agreed to pay $300,000 to settle complaints that a unit in Argentina paid a bribe to win contracts.
The SEC said the company filed misleading financial reports in 1994 and ’95 that failed to disclose the suspected bribe.
IBM neither admitted nor denied wrongdoing under that settlement.