[JURIST] Leading US auto supplier Delphi [corporate website] has settled [press release] civil fraud charges brought against it by the US Securities and Exchange Commission (SEC) [official website], the SEC announced Monday. The SEC complaint [PDF text] alleged that "between 2000 and 2004, Delphi engaged in multiple schemes that resulted in Delphi materially misstating its financial condition and operating results in filings with the Commission." Specifically, the SEC alleged that:

In 2000, Delphi engaged in two fraudulent accounting and disclosure schemes, which had the purpose of and ultimately resulted in Delphi hiding a $237 million warranty claim asserted by its former parent company and inflating its net income by $202 million.

In the fourth quarter of 2000, Delphi entered into two improper inventory schemes, through which it agreed to sell approximately $270 million of metals, automotive batteries and generator cores to two third parties at year end, while simultaneously agreeing to repurchase the inventory in the following quarter for the original sales price, plus interest charges and structuring fees. The purpose and result of the schemes was for Delphi to inflate its cash flow from operations by $200 million, engineer $270 million in inventory reductions and improperly report $80 million in net income.

In the fourth quarter of 2001, Delphi solicited a $20 million lump sum payment from an IT company in return for Delphi providing new business to the IT company. Delphi agreed to repay the $20 million over five years, with interest, which made the payment, in substance, a loan to the IT company. However, in order to meet earnings forecasts for the quarter, Delphi improperly accounted for the $20 million payment as if it was a nonrefundable rebate on past business, rather than a liability.

From 2003 to 2004, Delphi hid up to $325 million in factoring, or sales of accounts receivable, in order to improperly boost non-GAAP, pro forma measures of Delphi's financial performance that were relied upon by investors, analysts and rating agencies. Hiding this factoring allowed Delphi to overstate materially its "Street Net Liquidity," a pro forma measure, during that two-year period. In addition, in one quarter, Delphi also manipulated the hidden factoring to create a false $30 million boost in its "Street Operating Cash Flow," another pro forma measure.

Delphi will not face any fines but the corporation still faces pending shareholder suits.

The FBI [official website] began an investigation into Delphi in April 2005 concerning improper accounting at the firm after Delphi, which had launched an internal investigation into its accounting practices after receiving subpoenas from the SEC and Department of Justice, announced in March 2005 that it had improperly accounted for cash payments to former parent General Motors [corporate website]. Delphi said it improperly accounted for $237 million in payments made to GM in 2000 and was reviewing the timing of the release of $45 million of reserves in the first quarter of 2002 and recognition of an $18 million payment received from a customer in the fourth quarter of 2000. The Baltimore Sun has more.