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IBM: SEC Probing Earnings, Pay Disclosures

IBM (IBM ), the world's biggest computer services company, said Thursday that U.S. securities regulators are formally investigating the company's first-quarter earnings report and expensing of stock options.

The probe, which sent shares down 1.3 percent, follows an informal investigation disclosed by International Business Machines Corp. in June. The stepped-up investigation gives the Securities and Exchange Commission the power to subpoena documents, e-mails and individuals.

IBM said it was cooperating in the investigation.

First-quarter 2005 profit fell short of the mean analyst estimate by 5 cents per share — a big miss for IBM. But many analysts eventually concluded the miss was 9 cents per share, or nearly double the apparent shortfall, once they understood IBM's accounting for stock options.

"It's mostly a headline risk," said Richard Petersen, an analyst at Pacific Crest Securities. "I do think the change in the status makes it more likely that the SEC will find some fault with their disclosure practice. Most people already knew about this."

IBM, based in Armonk, New York, said in June it was cooperating with the SEC in the informal investigation.

Shares of IBM dipped 1.3 percent to $82.50 in extended trading on Inet. In regular trade on the New York Stock Exchange, the shares fell 60 cents, or less than 1 percent, to close at $83.57.