By 5 p.m. today, 695 of the nation's largest companies must certify to the U.S. Securities and Exchange Commission in Washington that the results of their companies' finances are true.
The rule affects nine companies based in the Baltimore region -- Allegheny Energy Inc., Black & Decker Corp., Ciena Corp., Constellation Energy Group, Legg Mason Inc., Lockheed Martin Corp., Magellan Health Services Inc., McCormick & Co. and W.R. Grace & Co.
All but Ciena, the telecommunications firm based in Linthicum, and the spice maker McCormick had filed by today's deadline. Those remaining companies have until the fall to certify their results, as they report earnings on a different schedule than most companies.
Here's what this regulation means:
1. Top corporate officials, chief executive officers and chief financial officers, must declare personally -- literally, to take an oath -- that their most recent financial statements are accurate. The new rule applies to companies' future reports, too.
By doing so, these officers are swearing that they know, for sure, that these results are true. If the reports are not, the executives must explain why these results are not accurate. This may lead some companies to restate their results to comply with certification.
2. The new regulation was imposed on June 27 by the SEC, in part after officials of such scandal-plagued companies as Enron Corp. testified on Capitol Hill that they did not know their companies were reporting false or misleading information.
3. The rule seeks to make top corporate officials more responsible for their companies' results.
In recent months, allegations of corporate fraud, accounting irregularities and earnings restatements -- and the subsequent plunge in 401(k) retirement-plan earnings and widespread layoffs -- have undermined public confidence in corporations and company executives. That has been a factor in some of the huge losses on Wall Street.
By increasing the burden on company officials, the commission believes that they will work to do business more honestly and that investors will see what they actually are getting when they buy a stock.
4. The decision by the SEC, headed by Chairman Harvey Pitt, affects companies with at least $1.2 billion in annual revenues. Some companies have received extensions to today's 5 p.m. deadline because they do not report their results based on a calendar-year system.
Those companies not complying with the new rule may face civil action by the SEC. "The commission will consider all of its options in fashioning an appropriate remedy, depending upon the circumstances in each case," said SEC spokesman John Heine.
Corporations also could face investigation and prosecution by the U.S. Justice Department, he said, as the SEC lacks criminal authority.
5. In addition, other corporate-reform legislation, supported by Maryland Democrat Sen. Paul S. Sarbanes and signed into law July 30 by President Bush, broadens the reporting rule to all 15,000 publicly traded companies in the United States.
The bill, which will affect many firms' results going forward, imposes civil and criminal penalties of up to $5 million and 20 years in prison on corporate executives who attest to financial statements they know are false or misleading.