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Safe Money Report

August 16, 2001

Pro-Forma Scams

We've told you again and again about the many deceptions companies use to enhance their earnings reports. By the look of things, they're still formulating new ways to scam you all the time. In fact, we are knee-deep in research on this topic right now for an upcoming issue of Safe Money Report.

But unwary investors are still falling for the old gimmicks such as pro-forma earnings. The media continues to play up these earnings reports too, even though they do not depict the true earnings of a company. So, investors keep on sinking money into these companies based on their "solid earnings" only to be stuck with a loser down the road.

Under the fast and loose accounting principles used to concoct pro-forma earnings, accountants can exclude everything from bad investments to advertising costs to research and development. Since when does developing and advertising a product not count against earnings? We'd like to see how much a company could earn without promoting their product or even having something to sell in the first place. These numbers are bogus, and we're doing our part to educate investors of these scams. We hope that eventually all investors will get wise to their tricks.

The SEC is already trying to crack down on the use of pro-forma earnings, but, as we said before, many companies are already looking for new ways to circumnavigate any SEC restrictions. Stay tuned.


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