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GM escapes SEC accounting probe without penalty

General Motors Corp. escaped from a federal accounting probe without penalty Thursday when the Securities and Exchange Commission settled charges that GM's mistakes violated federal laws.
/ Source: The Associated Press

General Motors Corp. escaped from a federal accounting probe without penalty Thursday when the Securities and Exchange Commission settled charges that GM's mistakes violated federal laws.

The Detroit automaker will not be fined and did not admit or deny the allegations. The charges involved "materially misleading disclosures" dating back to 2000 about how much money GM was earning on its pension fund investments, errors in accounting for derivatives, and improper accounting for the sale and repurchase of precious metals.

GM, which received a $13.4 billion loan commitment from the federal government last month to keep it out of bankruptcy, had been forced to restate earnings from 2000 through 2006.

The company said in a statement that the SEC never alleged fraud or other intentional violations.

The SEC and GM both said the settlement, which must be approved by a U.S. District Court judge in Washington, ends all outstanding SEC investigations of GM. An SEC civil complaint filed with the court asks for an order telling GM not to violate accounting laws again.

"It's a sin-no-more injunction," said Peter Henning, a former SEC attorney who teaches at the Wayne State University Law School in Detroit. "It's a books-and-records reporting case, not a securities fraud case."

The deal resolves an SEC investigation that began in 2004 as part of a wide-ranging examination of pension accounting practices at a number of big companies.

The violations, Henning said, came during a time when many companies pushed the limits of securities laws with their accounting methods, at times overstating items like pension fund earnings.

"This may be one of the last cases we see coming out of an era in which companies were very aggressive in their accounting," he said. "Some of this was not just poor accounting, but also aggressive accounting."

In its complaint, the SEC alleged that GM made significant errors in a 2002 regulatory filing concerning two pension accounting estimates, including the overstatement of estimated pension fund investment returns.

GM has acknowledged its accounting weaknesses and said it is working to strengthen its internal controls.

On a conference call with securities analysts Jan. 15, Chief Financial Officer Ray Young said the company brought in outside talent to help fix the problems.

"There has been extensive improvements in terms of our control environment and financial reporting," Young said.

The SEC said GM also failed in the 2002 filing to disclose significant information concerning projected cash contributions to its employee pension plans — and the potential effect of the contributions on the company's cash and capital.

The agency also said GM improperly accounted for a $97 million transaction to sell and repurchase precious metals in 2000, and it failed to properly account for a $100 million signing bonus it received for a railroad shipping contract in 2001.

The SEC said GM also improperly accounted for two derivatives contracts in 2004.

"GM accounting personnel lacked necessary accounting expertise with respect to accounting for derivatives," the complaint said.

The SEC said the investigation will continue "as to others," which Henning said likely means individuals. But he said it's unlikely any further action will be taken.

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AP Business Writer Marcy Gordon reported from Washington.