Xerox to pay $10M accounting fine

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Posted 4:36PM on Thursday, April 11, 2002

WASHINGTON - Xerox Corp. is paying a record $10 million civil penalty and revising financial statements back to 1997 to settle federal regulators' allegations of accounting fraud by the world's largest copier company. The Securities and Exchange Commission sued Xerox on Thursday in federal court in New York City, alleging that the blue-chip company used a variety of what it called ``accounting tricks'' and ``accounting opportunities'' to boost its earnings by some $1.5 billion and hide its true performance from investors. ``Xerox used its accounting to burnish and distort operating results rather than to describe them accurately,'' said SEC enforcement director Stephen Cutler. ``For Xerox, the accounting function was just another revenue source and profit opportunity. As a result, investors were misled and betrayed.'' The SEC's civil lawsuit was filed under a settlement agreement last week with the company. Xerox, based in Stamford, Conn., agreed to pay the $10 million penalty, which the SEC said was the biggest ever for alleged financial fraud by a publicly traded company. Xerox neither admitted to nor denied wrongdoing. The agreement also requires Xerox to restate its financial statements for 1997 through 2000 and adjust previously announced 2001 results. The restatement will primarily reflect adjustments in the timing and allocation of lease revenue and could involve a reallocation of equipment sales revenue in excess of $2 billion from 1997 through 2000, the company said. The SEC said the company's senior management ``orchestrated'' a four-year scheme to disguise its operating results and that the company had failed to fully cooperate in the government's investigation. The Wall Street Journal reported Wednesday that the SEC has widened its investigation, informing Xerox's former chairman and ex-chief financial officer and the company's former auditing firm, KPMG, that it may file civil charges against them. Spokesmen for the company and the SEC declined comment on the Journal report, which cited unnamed people familiar with the matter. Xerox has been under investigation since June 2000 for allegedly booking revenue prematurely. ``The settlement ... effectively resolves Xerox's outstanding issues with the SEC,'' Xerox chairman and chief executive Anne Mulcahy said in a statement. ``Xerox today is a stronger company with a new management team that has taken all the right steps to turn our business around.'' It is unclear what effect the restatement will have on Xerox's bottom line for those years. The company has said there will be no impact on the cash that has been received or is contractually due to be received from the leases. The restatement also will include adjustments that could be more than $300 million due to the establishment and release of certain reserves before 2001 and other miscellaneous items. Some financial analysts have suggested that Xerox's agreement with the SEC could help the company remove the uncertainty about its future that was created by the ongoing investigation - which began by examining Xerox's accounting and financial reporting practices at its Mexico operations and then widened. In afternoon trading Thursday on the New York Stock Exchange, Xerox shares were down 18 cents at $9.76.