Tuesday, June 14, 2005

SEC Bumps Up OfficeMax Case to Formal Investigation

OfficeMax announced that the SEC notified the company that an informal investigation into its accounting practices related to vendor payments has now become a formal investigation (press release here).  OfficeMax disclosed in December 2004 that it was conducting an internal investigation "into claims by a vendor to its retail business that certain employees acted inappropriately in requesting promotional payments and in falsifying supporting documentation for approximately $3.3 million in claims billed to the vendor by OfficeMax during 2003 and 2004." (See 8-K here) In February 2005, its CEO, Christopher Milliken, resigned because of an expanding internal investigation that raised questions about the proper accounting for other vendor payments.  While the internal investigation has been completed, the SEC's upgrade of the investigation means that the Division of Enforcement staff now has subpoena power to compel the production of documents and witnesses.

The issuance of a formal order is often a signal that the Commission staff views the case as one requiring the availability of broader compulsory powers so that it can obtain financial records and other evidence to complete the investigation and usually means it will take longer to complete.  In this case, the SEC may be looking at other vendor payments and possible transfers of funds through financial institutions, which require a subpoena under the Right to Financial Privacy Act before customer information can be disclosed. (ph)


Investigations, Securities | Permalink

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