SEC begins inquiry into IDB dispute with accountant; company officials say media reports helped prompt move.

The Securities and Exchange Commission has begun an informal inquiry into why accounting firm Deloitte & Touche quit as auditor for Culver City-based IDB Communications Group Inc. on May 23 over the financial reporting of certain business transactions.

According to SEC regulations, informal inquiries are undertaken in response to "complaints received from members of the public, communications from federal or state agencies, examination of filings made with the commission or otherwise."

The news sent the IDB stock from a comeback high of $9.05 a share on June 3 to $7 at last Wednesday's (June 8) NASDAQ close.

On the previous Wednesday (June 1), the telecommunications and satellite company's stock lost more than half its value after IDB's officials announced that its auditors had resigned. After seesawing between $5.25 and $8.50 per share, the stock closed at $7.13 that day. One day earlier it had closed at $14.50, its high of the day.

This market thrashing and its accounts in the press, claim IDB officials, convinced the SEC to take a closer look at the reasons behind the resignation.

"They (SEC officials) read about it in the newspaper," said IDB spokesman Peter Hartz. "They called us and asked our cooperation in discussing the situation. Meetings are being scheduled."

Hartz also acknowledged that shareholder lawsuits have been filed in federal court in Los Angeles over company information that may have been withheld or misleading.

"We are aware of the shareholder lawsuits but we haven't been served as yet to my best knowledge," Hartz said.

And he acknowledged that IDB had recently hired Century City-based Sitrick Krantz & Co., a public relations firm specializing in crisis management.

IDB officials had already filed a Form 8-K with the SEC on May 31 outlining the events leading up to the resignation, following up with a press release to the public and a teleconference with stock analysts. A publicly traded firm is required to file a Form 8-K if an event transpires that could affect its stock price.

According to the 8-K account, Deloitte had concerns regarding the adequacy of the documentation for certain business transactions comprising a material portion of IDB's net income for the first quarter of 1994. Although, stated the document, IDB officials were prepared to delay the company's quarterly filing with the SEC, Deloitte "abruptly resigned."

IDB President Edward Cheramy indicated to the Business Journal that the transactions in question were related to the sale of transponder time to British Telecommunications and a charge for bad debt reserves.

Joseph Arsenio, analyst with San Francisco-based investment bank Hambrecht & Quist, calculated the $5 million pre-tax gain on the BT sale and the $2.9 million bad debt charge would have adversely affected first-quarter results by $1.74 million, or about 2 cents a share.

Arsenio said that he temporarily suspended his purchase recommendation of the stock on June 1 pending an official statement from Deloitte to the SEC, the appointment of new auditors, and the release of their opinion on IDB's first-quarter results.

To date, a new auditing firm has not yet been hired, although a committee reporting directly to outside director Franklin E. Fried has been appointed to do just that, IDB officials said.

"Our audit committee is interviewing and reviewing firms," IDB spokesman Hartz said.

The quarterly financials that IDB filed with the SEC on May 23 reported its net profit doubled to $8.8 million during the first three months of 1994 from a year earlier. Revenues were reported at almost $104.4 million vs. $56.7 million.

Shortly after the May 31 announcement, rumors began circulating that the auditing firm's resignation concerned accounting problems stretching back to 1992.

On June 3, IDB Chief Executive Jeffrey Sudikoff remarked, "While we were surprised and disappointed that our relationship with Deloitte & Touche degenerated to the point of their resignation, they have not called into question any of the results from 1992 or 1993 for which they issued unqualified audit reports."