Office Depot paying $1M to settle SEC charges

By Marcy Gordon

AP Business Writer

WASHINGTON (AP) -- Office Depot Inc. recently agreed to pay $1 million to settle federal charges that it overstated earnings and shared information with a select group that it failed to include in public filings.

The Securities and Exchange Commission announced the settlement with Office Depot, which neither admitted nor denied the allegations.

The company was accused of overstating earnings in mid-2006 through mid-2007. It was also accused of letting a select group of investors and analysts know that it wouldn't meet earnings estimates for the second quarter of 2007.

In addition to the company fine, Chief Executive Stephen Odland and former Chief Financial Officer Patricia McKay agreed to pay civil penalties of $50,000 in connection with the charges of selectively disclosing information.

In the second quarter of 2007, Office Depot executives made a series of one-on-one calls to analysts, the SEC said in a civil lawsuit filed in federal court in Miami. The executives didn't directly say that Office Depot wouldn't meet analysts' expectations, but signaled that information by referring to recent public statements by companies with a similar profile about the impact of the economic slowdown on earnings, according to the SEC.

Analysts lowered their earnings estimates in response to the calls.

Odland and McKay neither admitted nor denied the allegations. The SEC said the executives encouraged the company to conduct the calls but didn't participate in them directly. Others in the company made the calls even after McKay was told that some analysts had concerns about the lack of public disclosure, the SEC said. Six days after the calls began, Office Depot made an SEC filing announcing that earnings would be reduced because of weakness in the economy. Before the filing was made, Office Depot's share price had fallen sharply.

The company's selective sharing of information "gave an unfair advantage to favored investors at the expense of other investors and, as today's action shows, is illegal," SEC Enforcement Director Robert Khuzami said in a statement.

The purpose of the SEC rule known as Regulation FD, for fair disclosure, is to level the playing field so investors all receive significant company information at the same time, agency officials said.

Office Depot reported the settlement in an SEC filing last week, noting that it resolves all matters concerning the company and Odland stemming from the agency's investigation. Spokesman Brian Levine said the company declined to comment further.

Charles Mills, an attorney representing McKay, declined to comment.

Published: Mon, Oct 25, 2010