Cardinal Health Inc., a manufacturer of medical supplies, has reached a tentative settlement with the Securities and Exchange Commission to end a two-year investigation into the company's accounting practices.
According to documents filed with the SEC, the company will be required to pay a $35 million fine. In September, Cardinal set aside an initial $25 million for a possible fine.
The SEC began its investigation of Cardinal in October 2003, initially looking at how the company accounted for expected settlements of lawsuits against vitamin manufacturers. Less than a year later, the investigation was expanded to explore how Cardinal classified revenues in its drug distribution business.
An internal investigation by the audit committee of Cardinal's board of directors found numerous errors, causing the company to restate annual and quarterly financial statements for more than four years. The revisions, which cut $28.4 million from Cardinal's bottom line in the 2004 fiscal year, involved bulk deliveries to customers, cash discounts earned from suppliers in exchange for prompt payment, and balance-sheet reserve and accrual adjustments.
Cardinal's accounting practices also are under investigation by the U.S. Attorney for the Southern District of New York, and a number of lawsuits have been filed claiming that the company misled investors about its financial condition.The company has spent more than $25 million in legal costs related to the investigations.
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