Xerox Says U.S. Attorney Probing AccountingSep 25, 2002 | The Los Angeles Times Xerox Corp. said the government has launched a criminal investigation into accounting practices that earlier this year led to a restatement of results and a record $10-million civil fine against the copier giant.
Word of the U.S. attorney office's inquiry surprised investors Tuesday and pushed Xerox shares down 10.6% to erase nearly six weeks of gains. Shares closed down 71 cents at $5.96 on the New York Stock Exchange.
Xerox said it learned late Monday of the investigation from the U.S. attorney's office in Bridgeport, Conn., and promised to cooperate fully.
A spokeswoman for the U.S. attorney's office, Delcie Thibault, cited Justice Department policy in declining to confirm or deny that a probe is underway.
But Xerox spokeswoman Christina Carone said the investigation covers accounting practices that were reviewed by the Securities and Exchange Commission and resolved.
The SEC began its investigation in June 2000 based on accusations by James Bingham, then assistant treasurer at Xerox. Bingham was fired soon after and has a wrongful termination lawsuit pending against the company.
Bingham attorney David Golub confirmed Tuesday that Bingham had met with the FBI, at the agency's request, and is cooperating with all federal authorities on the Xerox matter. The SEC, in a civil suit, charged the company with distorting financial results from 1997 to 2000 by recording revenue from equipment-leasing contracts before actually receiving payments, a practice that inflated revenue by nearly $6.4 billion.
In April, the company settled the civil fraud charges with the SEC, agreeing to pay a record $10-million penalty and restating financial results for 1997 to 2000, without admitting or denying guilt.
After the settlement, Xerox said the accounting woes that had pulled its stock down 70% over two years were a thing of the past.
Chief Executive Anne Mulcahy told analysts at the time that the company was moving on and putting full effort into reviving sales and profit amid a slowdown in corporate technology spending. In July, the company posted a surprise profit for the second quarter, helped by aggressive cost-cutting.
But the SEC said at the time of the settlement that its investigation into Xerox's abuses was continuing. The agency said that senior executives had orchestrated a scheme of "accounting tricks" to meet Wall Street growth targets and failed to fully cooperate with its investigation.
Ulysses A. Yannas, an analyst at Buckman, Buckman & Reid, said he doesn't think the criminal probe will affect the company's operations. "I don't think they'll be going after the company itself. They might be going after certain individuals."
Former Chairman Paul Allaire and ex-Chief Financial Officer Barry Romeril may be among the executives under investigation, analysts have speculated.