Thursday, April 14, 2005

The Delphi Investigation Snares GM

The SEC's investigation of Delphi has led to its former parent, General Motors, being subpoenaed for records relating to its accounting in two transactions between the company.  A Wall Street Journal article (here) describes the subpoenas as relating to a previously disclosed $237 million payment by Delphi to GM related to product recalls, and an $85 million credit from GM to Delphi related to retiree health benefits.  The issue of supplier rebates and warranty payments has come under the SEC's scrutiny in the past few months because these payments can be used as a type of "cookie jar" for companies seeking to smooth out their earnings.  The investigation of Delphi has already led to the firing of its CFO and other finance executives (see earlier post here), and there does not appear to be a quick resolution in sight yet for Delphi and other companies.  If the SEC finds any systematic abuses in the area, then the investigation is likely to spread to other auto suppliers, unwelcome news as the auto industry struggles with falling demand for its products. (ph)

Civil Enforcement, Investigations, Securities | Permalink

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