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Thursday, 11 April, 2002, 20:44 GMT 21:44 UK
SEC charges Xerox with fraud
SEC graph showing how Xerox boosted its profits
The Securities and Exchange Commission (SEC) has begun a crackdown on financial reporting irregularities at some of the US's largest companies on the heels of the Enron scandal.

The penalty also reflects - in part - a sanction for the company's lack of full co-operation in the investigation

Paul Berger
SEC enforcement office
The SEC on Thursday filed a civil suit against photocopy giant Xerox for misstating four years worth of profits, resulting in an overstatement of close to $3bn.

Technology giant IBM was also reported to be the subject of an SEC probe, although a report late on Thursday quoted a company source saying there was "no inquiry, formal or informal going on".

Xerox negotiated a settlement last week with the federal regulatory agency, whose mission is protect the interests of investors, with regard to the suit.

As part of that agreement, Xerox agreed to pay a $10m (7m) fine and restate four years' worth of trading statements, while neither admitting, nor denying, any wrongdoing.

'Accounting tricks'

The penalty is largest ever imposed by the SEC against a publicly traded firm in relation to accounting misdeeds.

"The penalty also reflects - in part - a sanction for the company's lack of full co-operation in the investigation," said Paul Berger, associate director of enforcement at the SEC.

Anne Mulcahy, Xerox chairman and chief executive
Mulcahy: The SEC settlement resolves "outstanding issues"

The government, in a complaint filed in Federal District Court in New York, alleged that Xerox committed fraud in boosting it profits by billions of dollars through accounting chicanery.

"Xerox employed a wide variety of undisclosed and often improper top-side accounting actions to manage the quality of its reported earnings," said Charles Niemeier, chief accountant for the SEC's enforcement division.

Xerox referred to the accounting actions as "one-offs", "one-time actions", "accounting opportunities" and "accounting tricks", the government said, which were frequently approved by the firm's management.

High-profile investigation

For its part, Xerox said the agreement it had reached with the SEC signalled an end to its two-year investigation.

"The settlement with the commission effectively resolves Xerox's outstanding issues with the SEC," Xerox chairman Anne Mulcahy said.

Under the terms of its agreement with the government, Xerox is to restate its profits statement for the years 1997-2000, primarily affecting how it accounted for income derived from the leases of its equipment.

Beyond Xerox, the SEC is also believed to be looking into Xerox's accountant at the time, KPMG.

If true, it would represent the first such high-profile investigation into corporate accounting practices not involving Arthur Andersen, the auditor used by bankrupt firms Enron and Global Crossing.

Broader investigation

In its statement on Thursday, announcing its settlement with Xerox, the SEC said it was continuing its investigation "as it relates to other parties", affirming a belief it may further widen its investigation to include many more large US firms.

When asked, an SEC official refused to note the names or the number of firms into which the agency has begun inquiries.

Nevertheless, the SEC has undertaken a record number of cases during the first two months of 2002, a spokesman said, as it aggressively increases its caseload of financial fraud cases - especially among Fortune 500 firms.

International Business Machines (IBM) is the latest big US firm to come under SEC scrutiny, according to a newsletter produced by SEC Insight, a purveyor of SEC documents.

Also known to be under scrutiny are telecoms firms Adelphia Communications and Qwest Communications.

See also:

11 Apr 02 | Business
SEC steps up Xerox probe
28 Jan 02 | Business
Xerox reports surprise profit
23 Oct 01 | Business
Xerox losses widen
12 Oct 01 | Business
Forecast losses double at Xerox
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