6 June 2003 Six former executives of Xerox have agreed to pay a total of $22 million to settle fraud charges related to accounting practices that led the world’s biggest imaging equipment maker to habitually overstate revenue over a four-year period.
The executives took part in a scheme that misled investors about the financial results of the company from 1997 to 2000, according to a lawsuit filed yesterday by the Securities and Exchange Commission (SEC), the US corporate watchdog, and settled by the six.
In total, the lawsuit alleged, the company exaggerated sales by $3 billion and earnings by $1.4 billion in order to meet targets given to Wall Street, primarily by recognising revenue from lease deals earlier than they should have been.
“They obtained illegal profits while engaged in the fraud. The executive suite should be reserved for those who tell the investing public the truth about the company’s performance,” said Paul Berger, the SEC’s associate director of enforcement.
The so-called Xerox six includes former CEO Paul Allaire, ex-CFO Barry Romeril and former president and COO Richard Thoman. Under the settlement, the officials neither admitted nor denied wrongdoing.
In a joint statement released by their lawyers, Allaire and Romeril said they wanted to “get on with their lives rather than undertake lengthy and expensive litigation of the issues”.
Xerox said it was contractually obliged to pay most of the former executives’ fines and legal fees, adding that it was likely to claim this cash back from its insurers. SEC officials hinted last night that they will be pressing for fresh corporate-law reforms to outlaw such practices in future.
Meanwhile, KPMG, the firm that audited Xerox’s accounts, is contesting allegations that it acted improperly in approving many of the accounting adjustments.