It does not smell right

Implications: Bed Bath and Beyond has admitted to back dating options from 1992 -2006 - 14 years! It admits that its top 3 executives were not only aware of this, but endorsed it. This included the co chairman, Warren Eisenberg, and it's CEO Steve Temares.

The Company then indicated that it did not need to restate, but instead corrected this with a charge to equity for $66 million and a charge in the current year for $8 million. Evidently they thought this was not material enough to restate. They also said they are investigating the tax implications of back dating and that the SEC has initiated an informal investigation.

It appears the company has been very aggressive in correcting and disclosing this event. How can the SEC investigate this event and not make them restate? Further, it sounds like there could be some criminal investigation facing this company as well as further adjustments for the tax impact of backdating.

It will be interesting to see how their Auditors respond to this disclosure. Do they feel comfortable enough with management's conclusions and the completeness of their investigation?

From the surface this appears to stink. Don't be surprised if you hear more about these transactions, including a more detailed investigation by the SEC and further adjustments to their financial statements.

Analysis: Based on my experience in dealing with the SEC, I don't believe they will be favorable to having this correction be charged to equity nor do I think they will be happy for disclosing this before determining the tax implications. This story will have more chapters.