Xerox stock fell 10.6% Tuesday after the U.S. attorney’s office told the company that it is under a preliminary criminal investigation for accounting practices.
The investigation, which surprised Xerox, comes five months after Xerox paid a record $10 million civil fine to the Securities and Exchange Commission to put the scandal in the past.
Analysts say that accounting offenses, grave at the time, seem almost tame in light of revelations at WorldCom, Tyco and Adelphia. Xerox officials used accounting techniques to push more revenue and profits from the leasing of copiers to the early years of the lease. That made the company look temporarily more successful than it was. No executive has been accused of stealing.
About eight Xerox executives profited from performance bonuses they otherwise would not have received. The suspect bonuses total about $5 million over the three years, 1997-2000. Executives also received $30 million in profits from stock sales.
Buckman Buckman & Reid analyst Ulysses Yannas says the SEC punished the company and now it appears that the U.S. attorney’s office will try to punish individuals. He predicted executives might have to repay the bonuses but said prison time is unlikely because criminal charges would require proof that the executives intended to commit a crime.
CEO Anne Mulcahy has told analysts throughout the summer that the accounting scandal was behind it and that the company was moving on. Now, Xerox has no idea how many authorities from other jurisdictions might be investigating. Spokeswoman Christa Carone says Xerox will fully cooperate.
Federal officials won’t name the individuals targeted, but they could include those contacted by the SEC in April: current Xerox Treasurer Greg Tayler; former controller Philip Fishbach; former assistant controller Daniel Marchibroda; former chief financial officer Barry Romeril; and former CEOs Richard Thoman and Paul Allaire. The investigation might also include Michael Conway, who led the Xerox audit for the company’s former accountant, KPMG.