WASHINGTON -- The Securities and Exchange Commission has sent target letters to at least seven former Delphi Corp. senior officials, a sign that its wide-ranging investigation into accounting fraud at the auto supplier is gaining steam.
Two lawyers familiar with the nearly two-year-old investigation told The Detroit News that the letters -- known as "Wells notices" -- had been sent to those under scrutiny.
A Wells notice notifies a prospective defendant of the substance of the civil charges that SEC investigators plan to recommend to the commission. If the commission approves, a target could be subject to fines and other civil penalties. The targets can submit written statements in their defense.
Six executives and other lower-level employees were forced to leave Delphi after the accounting probe. They include Alan S. Dawes, the company's vice chairman and chief financial officer; former Treasurer Pamela M. Geller; Paul Free, who was the company's chief accountant and controller; and John G. Blahnik, once vice president for treasury, mergers and acquisitions.
At least some of those officials are believed to have received Wells notices; lawyers for all four declined to comment yesterday.
In addition to the SEC's civil probe, the Justice Department is conducting a criminal investigation into Delphi's accounting.
In late March, federal prosecutors notified several former executives that they face criminal fraud and conspiracy charges if they didn't agree to plead guilty and cooperate. To date, no former executive has agreed publicly to cooperate and admit wrongdoing.
Jonathan P. Scott, the lead SEC lawyer assigned to the case, declined to comment. Joseph E. Papelian, Delphi's assistant general counsel, also declined to discuss the matter.
The Wells notices come as the SEC has been taking testimony from dozens of witnesses in Washington.
J.T. Battenberg III, Delphi's former CEO, testified in April, according to several officials. His lawyer, William H. Jeffress, declined to comment yesterday.
Delphi has acknowledged widespread financial errors, restated earnings and admitted improperly accounting for transactions that helped the company achieve earnings targets. It is the subject of more than a dozen shareholder and employee retirement lawsuits.
The SEC and Justice Department investigations have expanded to include a review of accounting missteps at General Motors Corp. Federal prosecutors in New York and Washington are reviewing GM's actions, and numerous employees have been questioned.
The Justice Department and SEC investigations are centered on whether Delphi officials doctored financial results to reach internal earnings targets and hide the company's declining financial condition. They also are looking at whether Delphi used phony transactions to improve earnings.
As a result of the accounting errors, Delphi has lowered its 2001 earnings by $265 million, reduced 2002 net income by $24 million and adjusted its 2003 net loss by $46 million.