SEC Fines Former Xerox Executives $22 Million to Settle Fraud Case
Press release from the issuing company
June 6, 2003 -- (WhatTheyThink.com) -- Six former Xerox executives will pay a total of $22 million to settle charges that they manipulated earnings in order to boost the company's share price, federal regulators said on Thursday.
According to the civil suit filed by the SEC, these executives schemed to use "one-time actions” and "accounting opportunities" to impose adjustments on quarterly results. These strategies, many discussed in internal emails, had the effect of artificially increasing equipment revenue and inflating earnings by approximately $3 billion and increasing pre-tax earnings by approximately $1.4 billion between 1997 and 2000.
The moves allowed Xerox to meet or exceed Wall Street expectations in nearly every reporting period during 1997 - 1999. By 1998, nearly three out of every ten dollars of Xerox's annual reported pre-tax earnings and up to 37% of its reported quarterly pre-tax earnings came from undisclosed changes to its historic accounting practices and estimates.
"A public company's stock price should reflect economic reality, not a distortion of that reality," said Stephen M. Cutler, the SEC's Director of Enforcement. "As alleged in the complaint, Xerox's senior management substituted accounting devices for the company's true operational performance. The investing public pays an enormous price for such fraudulent conduct."
- Former CEO Paul Allaire will pay $8.6 million.
- Former CEO Richard Thoman will pay $6.9 million.
- Former Chief Financial Officer Barry Romeril, will pay $5.2 million.
- Philip Fishbach, former controller will pay $1.05 million.
- Daniel Marchibroda, former assistant controller will pay $437,319.
- Gregory Tayler, former controller will pay $200,000.
Paul Allaire agreed to not serve as an officer or director of a publicly traded company for five years. He will depart board positions at Lucent Technologies, Priceline.com and will no longer be a director at Europe-based GlaxoSmithKline. Romeril can never serve as an officer
or director of a public company.
Last year, Xerox paid $10 million to the SEC to settle charges that it manipulated its financial results. The company restated results for the period in question (1997- 2000) and also revised its 2001 results.
The $22 million will be deposited into a court account pursuant to the Fair Fund provisions of the Sarbanes-Oxley Act of 2002 for ultimate distribution to victims of the alleged fraud.
Wilmer, Cutler and Pickering, the law firm representing Allaire and Romeril, said the retired pair "have decided to put this issue behind them and get on with their lives rather than undertake lengthy and expensive litigation of the issues," according to Reuters.
Christa Carone, a Xerox spokeswoman, told the Wall Street Journal yesterday that the company has put a new management team in place "that has taken the necessary actions to put these issues behind us."
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