The Securities and Exchange Commission charged six former senior executives of Xerox (XRX) with securities fraud and other violations of federal securities laws.Named in the complaint were former chief executive officers Paul A. Allaire and G. Richard Thoman and former CFO Barry D. Romeril. The SEC said the six defendants have agreed to pay more than $22 million in penalties, disgorgement and interest without admitting or denying the commission's allegations. The SEC alleges that the executives engaged in a scheme from 1997-2000 that misled investors about Xerox's earnings in a bid "to polish its reputation on Wall Street and to boost the company's stock price." The company allegedly used accounting approaches that weren't disclosed to investors, but many violated generally accepted accounting principles. The complaint also says the defendants' conduct was responsible for accelerating the recognition of equipment revenue by about $3 billion and increasing pretax earnings by roughly $1.4 billion in Xerox's 1997-2000 financial results. In addition to Allaire, Thoman and Romeril, the SEC's complaint names Philip D. Fishbach, the former controller at Xerox who retired in April 2000; Daniel S. Marchibroda, who served as assistant controller until January 2000; and Gregory B. Tayler, who at different times held the posts of director of accounting policy, assistant treasurer and controller. The SEC's complaint, filed in the U.S. District Court for the Southern District of New York, alleges that the defendants relied on what Xerox internally called "one-time actions," "one-offs," "accounting opportunities" and "non-operational actions" to impose accounting adjustments on the company's results in order to increase equipment revenue and inflate earnings. The accounting actions were used at the end of each financial reporting period during 1997-2000 to "close the gap" between Xerox's actual underlying earnings and its internal targets and those of Wall Street analysts, the SEC said.
Specifically, the complaint alleges that all of the defendants fraudulently failed to disclose to shareholders and investors the financial impact of the principal accounting devices used during 1997-2000. The SEC previously brought two other actions based on the same scheme and other allegations. In April 2002, without admitting or denying the SEC's allegations, Xerox paid a $10 million civil penalty, agreed to restate its financial statements and said it would hire a consultant to review the company's internal accounting controls and policies. Then in January, the SEC took action against Xerox's former auditor, KPMG, and four of its partners in connection with the audits of Xerox from 1997-2000. The action against KPMG and its partners is currently in litigation. Shares of Xerox were down 7 cents to $11.36 in recent New York Stock Exchange trading.