A bit too discreet…

January 11, 2006

Late last night, I stumbled across an interesting disclosure in the 10-K filed by Engineered Support Systems (EASI). At first, I thought I must have been reading it wrong — that a company wouldn’t really disclose a formal SEC investigation that began in December 2004 and which involved “subpoenas to various individuals associated with ESSI” a year after the fact. But as I read further, I realized that ESSI must have just been trying to be discreet. How else to explain the fact that the company not only failed to disclose the formal investigation, but also failed to note that the investigation had expanded beyond the initial scope to include subpoenas issued to the company? Or that a former director and officer has received a Wells notice from the SEC. Do these folks need a refresher course on the 8-K?

Though the company never says who the former director and officer is, a good bet is Michael Shanahan, the company’s former Chairman and CEO, who became non-executive chairman last April. As non-executive chairman, Shanahan is being paid $62,500 a month, which ought to go a long way to paying those legal bills.

Even more amusing about the company’s discretion is that it notes in the K that the SEC’s investigation focuses on trading in the company’s stock and the adequacy of disclosing certain related-party transactions. So perhaps there is such a thing as being too discreet.

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