Xerox agrees to pay $10 million fine to SEC

Xerox Monday announced it has agreed to pay a civil penalty of $10 million and will restate some of its financial results dating back to 1997 as part of a proposed settlement with the Division of Enforcement of the U.S. Securities and Exchange Commission.

In a case launched in June 2000, the SEC accused managers of Xerox's Mexican subsidiary of violating accounting and ethical policies in an effort to artificially inflate sales results.

The proposed settlement still awaits final approval by the SEC and its commissioners, Xerox said in a statement.

Representatives from Xerox and the SEC could not immediately be reached for comment.

Under the terms of the settlement, Xerox will "neither admit nor deny the allegations of the complaint, which would include claims of civil violations of the antifraud, reporting and other provisions of the securities laws," the company said.

In its own investigation into its Mexican operation, made public in February of last year, Xerox said it had failed to take losses for uncollectible accounts and instead misrepresented them as new debt that could be collected. It also had engaged in bad record keeping and had listed equipment that had been leased or rented as having been sold.

The company has since changed its revenue allocation methodology, Xerox said.

"In the past year, we have made substantial improvements in our operations through a bold and comprehensive turnaround program," said Anne Mulcahy, Xerox chairman and CEO in a statement filed with the SEC.

"We have proven that, when faced with difficult decisions, we take the appropriate actions that will serve Xerox best for the long term, strengthening the company's value proposition for our customers and shareholders. That's why we believe Xerox is best served by putting these issues with the SEC behind us and focusing on restoring the company to good health, sustained profitability and future growth," Mulcahy said.

The $10 million fine would far exceed the $3.5 million in penalties that America Online paid in May 2000 to settle a civil suit with the SEC. AOL had been charged with improper accounting of advertising and marketing costs during the mid-1990s.

Along with restating its financials for the years 1997 through 2000, Xerox would also issue an adjustment of previously announced 2001 results, the company said. The restatement would mainly reflect adjustments in the timing and allocation of lease revenue recognition and could involve a reallocation of equipment sales revenue in excess of $2 billion from 1997 through 2000, Xerox said.

The company did not specify what financial effect the resettlement would have on its bottom line, other than to say that the restatement would also include adjustments "that could be in excess of $300 million due to the establishment and release of certain reserves prior to 2001 and other miscellaneous items."

Xerox claimed there would be no impact on the cash that has been received or is contractually due to be received from leases and that the monetary value of the leases would not change.

The IDG News Service is a Network World affiliate.