The Securities and Exchange Commission is investigating General MotorsE accounting in various matters,Ethe automaker disclosed yesterday, including its handling of pensions and some transactions between G.M. and Delphi, the supply giant that was once a division of G.M.
Taken together, the investigations, which include the issuing of subpoenas, appear to be looking at whether G.M. has understated debt or inflated income.
Until now, the S.E.C. was known to be conducting an informal inquiry of the pension accounting at half a dozen large companies, including G.M., the worlds largest automaker.
But word of subpoenas was a sign that the S.E.C.s inquiry had taken on new breadth and momentum, and was focused on G.M. The S.E.C. cannot serve companies with subpoenas unless the commission has voted to authorize a formal investigation.
In a statement issued late yesterday, G.M. said the subpoenas involved not only its accounting for retirement benefits and some transactions with Delphi but also its handling of the recovery of recall costs from suppliers.
The S.E.C. is also looking at the reporting of benefits G.M. might have to take over from Delphi now that Delphi has filed for bankruptcy protection.
Separately, G.M. said that some units of its financial subsidiary, the General Motors Acceptance Corporation , had been served with subpoenas by the S.E.C. and a federal grand jury in connection with industrywide investigations into practices in the insurance industry relating to loss mitigation insurance products such as finite risk insurance.E
When used properly, finite risk insurance allows corporations to spread their risk of loss on an asset or business over time. But federal investigators have been looking into whether some companies have used finite insurance to artificially enhance financial results.
A G.M. spokesman said he could not comment on whether the company was being subpoenaed as a witness, subject or target in the investigation of finite insurance.
G.M. and its subsidiaries are cooperating with all these investigations,E the company said in its statement. G.M. has no further comment at this time.E/P>
The S.E.C.s investigation into G.M.s accounting for retiree benefits does not appear to have any bearing on whether G.M.s retirement plans are sound, or whether G.M. has set aside enough money to make good on its promises to retirees. But if G.M. ended up reporting larger total obligations to its retirees, then investors and creditors would have to conclude that G.M. had less cash available for possible future dividends, share buybacks and general business activities than they had been counting on.
The disclosures came one day after DaimlerChrysler referred, in its quarterly earnings statement, to an S.E.C. investigation of G.M.s accounting for its pension and retiree medical plans. DaimlerChrysler said that it had been served with a subpoena, but that the commission was seeking information as part of its investigation of G.M. DaimlerChrysler said in its disclosure that the S.E.C. had asked for information relating to the discount rate and discount rate methodologyEthat it had used in calculating retirement benefits for its employees in North America. The discount rate is the most powerful of all the actuarial assumptions used in pension calculations. Tiny fluctuations in the chosen rate can translate into billion-dollar differences in the pension values that a company the size of G.M. reports to its shareholders.
In its latest financial report, G.M. said it had pension obligations of $89.4 billion and had set aside $90.9 billion to pay them. For every 0.25 percent reduction in its discount rate, G.M. has said, its obligations would increase by $2.3 billion.
The G.M. investigation appears to grow out of an informal review of the pension accounting of six large companies that the S.E.C. began in October 2004. At that time, an S.E.C. official said the commission had not found any violations of securities law, but wanted to see whether there was any connection between the companiesEaccounting for retirement benefits and efforts to smooth earnings.
The accounting standard for pensions has come under intense criticism lately because it makes earnings manipulation possible.
DaimlerChrysler was not part of the review at that time. The six companies were G.M., Delphi, Ford Motor, Boeing, Navistar International and Northwest Airlines. All have said they are cooperating with the S.E.C.
The other focus of the S.E.C.s investigation is G.M.s transactions with suppliers, particularly Delphi. Suppliers at times pay G.M. either to share in the cost of recalls related to faulty parts or as refunds for cost savings reaped over time.
How these transactions were accounted for became the subject of scrutiny in March when Delphi concluded its own accounting inquiry. Delphi said it had improperly accounted for a $237 million payment made to G.M. in the third quarter of 2000. That revelation raised questions about G.M.s accounting for the payment because G.M. did not disclose it and it increased G.M.s income substantially in the quarter.