The Securities and Exchange Commission has elevated a probe into IBM’s stock option disclosures to a formal investigation, the Armonk, N.Y.-based computer giant disclosed last week.

IBM said it has been “cooperating with the SEC in an informal investigation of this matter, and will continue to do so.” Big Blue noted that the SEC has informed it that “the investigation should not be construed as an indication that any violations of law have occurred.”

Formalizing its investigation allows the SEC to subpoena documents and e-mails and to require people to testify, notes John M. Wirtshafter, a shareholder at McDonald Hopkins in Cleveland.

Wirtshafter

“One could potentially infer that the SEC found something they didn’t like during the informal investigation that they wanted more information about, or that they weren’t feeling like they were getting full cooperation; otherwise, why bother with a formal investigation?” Wirtshafter says. “However, that’s only an inference,” he adds. “IBM said they’re cooperating with the SEC. IBM has a good track record of having been compliant—there's no reason to assume that there was any intentional failure on their part.”

The investigation, first announced back in June, concerns IBM's disclosures relating to the company’s first-quarter 2005 earnings and expensing of equity compensation. The probe appears to focus on whether the company misled investors about the impact of stock option expensing on its earnings. While the company hasn’t provide details on the investigation, reports have focused on the gap between guidance the company provided on the impact of its stock options expensing, and the actual impact the company reported shortly thereafter.

While Wirtshafter says companies monitoring the probe “should take it for exactly what it is: a sign that the SEC is serious about full, fair and timely disclosures.”

Related coverage is available from the box above, right.