WASHINGTON, Jan. 16 (UPI) -- The Securities and Exchange Commission today reported its first pro forma financial reporting case against Trump Hotels & Casino Resorts Inc., accusing them of making misleading statements in its third-quarter 1999 earnings.
The case is of great importance to Wall Street because it suggests that pro forma earnings reports, which have been used by many companies to dress up poor operations and thereby boost their stock price, may in some circumstances not be acceptable to the SEC.
The case comes at the same time that the SEC attempts to restructure its system for policing auditors and stem criticism over the current Enron debacle.
"The case starkly illustrates how pro forma numbers can be used deceptively and the mischief that they can cause," said Stephen M. Cutler, Director of the Commission's Division of Enforcement.
According to the Commission, Trump Inc. had used its pro forma ratings to embellish positive operating results, when their reported earnings came mainly from an abnormal one-time gain. It also held the company's former chief executive officer, chief financial officer and treasurer accountable of violating anti-fraud provisions of the Securities Exchange Act.
None of the three were charged with an individual offense, and the proceedings concluded with the case issuance alone, said Wayne Carlin, director of the SEC's New York regional office.
Later in the day, Trump Inc. agreed to settle the dispute, but did not admit to or deny any of the Commission's findings. The penalty forces the company to comply with a cease-and-desist order and does not amount to any monetary fees.
On Oct. 25, 1999, Trump Inc.'s third-quarter results showed net income and earnings-per-share deductions that did not conform with generally accepted accounting principles. The report was flawed because it did not disclose the singular gain of $17.2 million that resulted from the lease termination of All Star Café, a restaurant that was renting space at Trump Taj Mahal Casino Resort in Atlantic City.
The same day the price of the Trump Inc.'s stock rose 7.8 percent. Three days later when a news article revealed the impact of the undisclosed gain, the stock price fell about 6 percent.