SEC Likely to End Probe of DreamWorks

Securities and Exchange Commission officials have recommended dropping a probe into trading in DreamWorks Animation SKG Inc. stock, lifting a cloud over the animation studio as it seeks to improve its standing on Wall Street.

Agency officials had launched an informal investigation last summer into activity surrounding the Glendale company’s stock in the wake of financial disclosures that rattled Wall Street. DreamWorks had surprised analysts by saying it would post a quarterly loss caused by softer-than-expected DVD sales of its hit film “Shrek 2.”

But, in documents it filed Thursday with the SEC, DreamWorks disclosed a letter from the agency that effectively closes the matter.

In the letter to the company’s lawyers dated Wednesday, Kelly Bowers, senior assistant regional director for the SEC in Los Angeles, wrote that the “investigation has been recommended for termination, and no enforcement action has been recommended” to the commission as a whole.

Although the staff is recommending the move, such actions are usually tantamount to the dropping of an inquiry.

Bowers did not specify the reasons for the decision. A DreamWorks spokesman declined to comment.

Dropping the probe would go a long way toward helping DreamWorks move beyond a painful episode in its brief history as a public company.

Since the earnings disclosure, company executives have been working hard to regain credibility with investors, adopting a more conservative approach in dealing with Wall Street.

The earnings surprises and stock slide last summer also prompted a bevy of shareholder lawsuits from some investors who accused DreamWorks executives of misleading them about the company’s finances.

The company has said the suits are without merit, and so far is winning in court. Three shareholder suits have been dismissed, with a fourth pending.

Although “Shrek 2” sold briskly when it was released on DVD in 2004, DreamWorks and other companies have found themselves facing rapid changes in consumer buying habits. DVD sales drop off more sharply now than in the past, and retailers quickly return titles to make room for the freshest DVDs available.

DreamWorks stock is off by more than one-third from its peak in December 2004. The company is counting on its upcoming feature, “Over the Hedge,” to boost its earnings.

The company’s shares rose 43 cents Thursday to $27.80.