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SEC Targets Senior KPMG Partner

Jan 26, 2003 | FT.COM

US regulators are targeting one of the most senior figures at KPMG in their action against the accountancy firm's role in alleged fraud at Xerox.

Mike Conway was the lead partner during part of the five years in which the accounts of the copier company were allegedly manipulated. He is now the partner in charge of KPMG's department of professional practice, overseeing the group's stance on rules and accounting standards.

His stature at KPMG is one reason the Securities and Exchange Commission is set to take the unusual step of suing the whole firm for fraud as well as the individual accountants involved. KPMG plans to fight the suit.

Xerox settled with the SEC in April, paying a $10m (£6.4m) civil penalty without admitting or denying wrongdoing. The US copier company was accused of bringing forward equipment revenue. It later restated $6.4bn in revenues over five years.

Mr Conway became the partner in charge of the audit in early 2000 after Xerox requested a change and Ron Safran, his predecessor, completed the 1999 accounts. Mr Safran is also under investigation by the SEC.

KPMG is angry. It has cited experts from Xerox's new management, other auditors and former SEC officials who agree that the revenue-recognition policies were in line with standard accounting principles.

It says Mr Conway refused to sign off the 2000 financial statements until a special investigation was finished. The firm says it is "astonishing to us that the SEC would choose to bring this action where KPMG so clearly did the right thing".

A fraud suit against the whole firm, expected this week, would be a civil case and less threatening than the US government's criminal action that brought down Andersen last year. If the SEC prevailed, it would secure an injunction against KPMG from straying again. A later offence could land the firm in serious trouble.

The SEC rarely sues both a firm and individual accountants, though it recently signalled it would do so more often if it was unhappy with an accountancy group's co-operation.

A case is not likely to come to court for at least 18 months.

Mr Conway was not available for comment.

The SEC said it did not comment on individual investigations.

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