Settle An SEC Case, Learn A Lesson?
To settle an investigation into Dell’s accounting and reporting procedures, the computer company will pay $100 million to the U.S. Securities and Exchange Commission (SEC), in a case that bears unmistakable similarities to the recent Goldman Sachs settlement with the SEC for $550 million. On the surface, the lesson we should learn is obvious: Be honest, don’t commit fraud, and love thy neighbor.
Is The Lesson That It Sometimes Makes Sense To Pay People Off?
Diving more deeply, however, makes me feel a little queasy because I have to think about the more cynical lessons we can learn. As I discussed in my previous article, the Goldman Sachs settlement represented a huge sum to the SEC in terms of its history of settlements, but it was a small price for the multibillion dollar company to pay to get the regulatory agency off of its tail. Apparently, Dell set aside $100 million in June, just in case it wound up having to pay the SEC.
Companies Might (Or Might Not) Have Learned Their Lessons, But I Choose A Different Takeaway
So, the question is, have these companies learned their lessons? Maybe. $100 million isn’t nothing, after all. All the same, in the case of Goldman Sachs, the large payment replaced a more severe charge that would have marred the company’s good name more drastically. I have to wonder: Did it at all pay off for these companies to continue some of their shady acts and then settle the cases, rather than simply not engaging in shadiness in the first place? Possibly. But I’d rather take a different message home.
Be Careful In Your Accounting, And Don’t Let Errors Slip Past
Let’s play the devil’s advocate for a moment and assume that these companies didn’t commit fraud or do anything willfully wrong. Let’s say that Goldman followed all the rules—in letter if not in spirit—about disclosing its deals, and that Dell simply had an alternate way of recognizing revenue from its business relationship with Intel. Fine. In a similar way, many regular people and small businesses can be tripped up in regulatory red tape when it comes to taxes, income reporting, and many other financial affairs. One relatively unknown rule states that if your business suffers losses for too many years in a row, it’s no longer a business but a hobby—and that you can’t write things off as business expenses. It wouldn’t be too hard for a person like me or you to become unknowingly caught in a rule like that, which is one of many. The moral isn’t to panic about your accounting procedures, but to be meticulous and to refrain from sweeping financial concerns under the rug.
Whether or not Goldman Sachs and Dell have learned from their mistakes, we can learn from them.