NEW YORK (CNN/Money) -
Aug. 14 hangs over CEOs' heads like Damocles' sword.
It's the date that CEOs and CFOs at most big companies, under orders from the Securities and Exchange Commission, must attest -- under oath -- to the accuracy of recent financial statements. For stocks in companies whose executives sign off, all is good. But if they don't, the thread will snap and the sword will fall.
"The CEOs that don't sign, their stock price will see an immediate fallout," said Harvard Business School accounting expert David Hawkins. "Some of my hedge fund friends are already trying to find out who will not be able to sign by Aug. 14."
The SEC ruling, put through a month ago, applies to the 947 companies that had over $1.2 billion in revenue last year. For those whose latest quarters ended June 30 -- which is to say most -- Aug. 14 is the drop-dead date. Executives must swear, "to the best of my knowledge," that their most recent annual reports and subsequent filings are accurate. If they sign off on what turns out to be inaccurate accounting, they risk perjury and prison.
So far, just 9 companies' CEOs and CFOs have signed off on their statements. The SEC is keeping a running tally of companies that have complied on its site.
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Only 938 to go...
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| CEOs and CFOs at these nine companies have signed off on their books -- 947 have to by Aug. 14.
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"It's formalizing something that needed to be formalized, quite frankly," said Hawkins. Ultimately, it will all be to the good. Company CEOs will be keeping a much closer eye on the books, and with the threat of jail time hanging over anyone who tries to pull a fast one we may avoid future Enrons. Just as important, the SEC's move will help restore investor confidence.
CEOs can refuse to sign, but they must say why -- like that they only started working at the company recently -- and some of the companies forced to switch accountants due to Arthur Anderson's demise may have to ask for extensions. The market may not regard such moves kindly, assuming that the real reason executives aren't signing off is that they've seen the Shawshank Redemption too many times.
"If your company comes up on the list of those that haven't signed," said Brett Gallagher, head of U.S. equities at Julius Baer Investment Management, "there's going to be a lot of questioning."
The big fear is the heads of some hugely important company doesn't sign off on its statements, or that they reveal that they have to put through a major restatement of results before they do, and that this could provoke another dive lower for stocks. At the least, some people reckon that stocks could come under pressure as investors take out insurance against some big shoe dropping.
"There is this concern over Aug. 14," said Weeden market strategist Steve Goldman. "It might be used as a catalyst for selling."
But Jeff Matthews, who runs the Conn.-based hedge fund Ram Partners, thinks the focus on Aug. 14 may be misplaced.
"It's a stupid, artificial date," he said. "It doesn't change whether a company is bad or not."
The executives at Pfizer, for example, will almost certainly sign off on its accounting, thinks Matthews. But the reason to believe in Pfizer isn't because it will sign off; it's because it's a solid company.
In the end, investors who stick to the sidelines for fear of what could happen may be sorry they did. The worries over Aug. 14 are so well-worn, according to Matthews, that they're already priced into the market. It reminds him of the market jitters heading into the Gulf War in 1991.
"Everyone said when we invade, the market will collapse," Matthews remembered. "But the day we invaded the market rallied. Any idiot that waited around was left holding the bag."
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