The misinformation case against the company formerly known as Veba AG is the first of its kind involving a foreign company. It sends a message that foreign corporations selling securities on U.S. markets are subject to U.S. fraud laws regardless of where the allegedly misleading statements are made, in the U.S. or abroad. There are roughly 1,200 foreign companies registered to sell securities in the U.S., and analysts expect the number to grow.

"The reach of U.S. securities laws is not limited by our borders. In today's global marketplace, false statements made overseas can harm U.S. investors as much as statements made domestically," said SEC Enforcement Director Richard Walker.

The commission alleged that from July 29, 1999, until Aug. 31, 1999, Veba denied press reports that it was engaged in merger negotiations with another German company, Viag AG. In fact, as of July 29, the two had already executed a confidentiality agreement, retained investment bankers and engaged in high-level talks about structuring the combined companies, the complaint said. Without admitting or denying the allegations, E.On agreed not to violate U.S. securities laws in the future. The SEC didn't impose a fine, since the action was filed as an administrative proceeding rather than as a suit in federal court.

E.On, the new name for the merged Veba and Viag, is Germany's third-largest industrial holding company, with chemical, energy and telecommunications operations.

The company said it deliberately denied its merger negotiations after consulting lawyers knowledgeable in securities law. Its rationale was that it had made the statements in Germany, not the U.S., and therefore believed it was subject to German disclosure rules.

An E.On spokesman said Thursday that the company has changed its interpretation of SEC regulations. "The requirements for companies in the U.S. and Germany are still very different," said Josef Nelles, an E.On spokesman. "But the SEC has made it very clear what its position is on this - that what applies to domestic companies listed in the U.S. goes for foreign companies as well."

As a result of the investigation, the company revised its disclosure policy late last year. In the future, rather than confirming or denying the existence of merger talks.