“Securities and Exchange Commission officials, concerned about an explosion of transactions that falsely created the impression of booming business across a range of industries, are conducting a sweeping investigation into a host of practices that pump up revenue,” writes Susan Pulliam in today’s Wall Street Journal.

“The inquiry is extending far beyond the disclosures by Dynegy Inc., Reliant Resources Inc. and CMS Energy Corp. that they engaged in illusory “swap” trades that boosted their apparent business. Questions about whether companies’ revenues are legitimate are spreading from industry to industry, raising further questions about whether misleading practices contributed to the hyper-growth of the stock market during the late 1990s.”

“In addition to the SEC’s inquiry into the telecom companies Global Crossing Ltd. and Qwest Communications International Inc. swapping fiber-optic capacity to increase revenue, people familiar with the matter say the agency’s investigation into Lucent Technologies Inc. is now also probing the role vendor financing played in its sales. The agency has won restatements in a look at three Internet firms that booked revenue from wire transfers among themselves that were purportedly payments for services; a lawyer familiar with the transactions says that at least in some instances there were no such services. Those examples come on top of recent acknowledgments by major companies in disparate fields, such as Kmart and Xerox, about revenue they’ve claimed that has subsequently been questioned by regulators.”

” ‘I don’t want to say it’s an epidemic, but we’ve seen enough problems that it concerns us. We need to hit this pretty hard,’ says Charles Niemeier, head of accounting of the SEC’s Enforcement Division. ‘Some companies were trying to give the appearance of economic activity when there was none.’ “

“The SEC’s crackdown, which began after Enron’s collapse, has widened in recent weeks as the agency found more problems. It represents the agency’s first comprehensive look at transactions directly affecting revenue, which even more than profits or earnings fueled the stock-market boom. Many investors had come to rely heavily on the revenue figure in recent years as the most reliable measure of a company’s health. Questions about revenue — even more than the earlier investigations of Enron and other companies accused of using accounting tricks to inflate their profits — could cast the widest pall over the outlook for future stock-market growth.”