UPDATE: Three Years And $1 Million Later, Office Depot Past SEC Charges

Over three years after the alleged transgressions, Office Depot Inc. (ODP) has settled Securities and Exchange Commission charges that the office-products chain violated fair-disclosure regulations.

Wall Street was modestly pleased by the results, and Office Depot stock pared earlier losses after the SEC released the settlement news, as investors were relieved the fine wasn't larger and won't force the Boca Raton, Fla., company to seek a new top executive.

Office Depot agreed to pay a $1 million penalty, while Steven Odland, chairman and CEO, and Patricia McKay, Office Depot's former chief financial officer who's now a partner at accounting firm Templeton & Co., both agreed to $50,000 fines. None of the parties admitted or denied the SEC's findings, which is typical of SEC settlements.

By the middle of 2007, the SEC charged, Odland and McKay were facing a problem: Formerly vigorous per-share earnings growth was fading, but Wall Street analysts following Office Depot still had earnings estimates for the company it wouldn't be able to meet.

Odland and McKay then instructed the Office Depot investor-relations staff to call all 18 analysts covering the company over a two-day period in late June of that year. Company representatives then called Office Depot's top-20 institutional investors to send a similarly cautious message. Such selective guidance violates fair-disclosure rules under Regulation FD.

Without directly saying the estimates were too high, Office Depot pointed out cautionary language in its previous communications and highlighted cautious language from competitors. It worked, as 15 of 18 analysts lowered their estimates by the second day of calls.

The SEC said Office Depot shares dropped 2.8% the first day of its calls to analysts, on Friday, June 22, 2007, on heavy volume, and fell another 3.5%, again on heavy volume, on the second day the following Monday, June 25. All told, the stock fell 7.7% in the five sessions between when the first calls talking the analysts' estimates down were made and an after-hours filing by Office Depot on June 28 announcing that, among other things, its earnings would be "negatively impacted due to continued soft economic conditions."

Office Depot at the time didn't have written Regulation FD policies or procedures, the agency said, and had never conducted any formal training in how abide by the rules.

The company was also hit with unrelated accounting violations, stemming from the way it formerly recognized some payments from vendors for Office Depot's marketing and promotion of those vendors' products. This matter was also settled under the agreement with the SEC.

Office Depot shares closed down 0.9% on Thursday at $4.65 apiece, recovering from earlier session lows once the SEC announced the settlement as investors reacted to the news. The SEC investigation and worries about the fate of its current chairman and CEO had been once more worry for followers of Office Depot, whose shares have fallen by more than a third in the last year as the recession hurt its business.

Office Depot's recent losses amid reduced revenue has allowed competitor OfficeMax Inc. (OMX), whose shares are up 22% since last October, to move into a virtual market-capitalization tie with Office Depot. Both companies currently sport market caps just under $1.3 billion, putting whichever company that wins the battle in distant second place to office-supply behemoth Staples Inc. (SPLS), whose market cap at Thursday's close was around $15 billion.

-By Maxwell Murphy, Dow Jones Newswires; 212-416-2171; maxwell.murphy@dowjones.com

(Matt Jarzemsky contributed to this article.)

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