Did They or Didn’t They?

Rashomon? Pitt says he didn't talk Xerox with KPMG head; KPMG head reportedly says he talked Xerox with Pitt. Also: ex-Anicom CFO sued by SEC, and Andersen settles in Arizona.


Securities and Exchange Commission chairman Harvey Pitt insists he did not have any discussions with the new chairman of KPMG regarding enforcement issues.

Pitt, an attorney who represented Big Five accounting firms prior to being named to head the commission, is under attack for a meeting he had on April 26 with Eugene O’Kelly. O’Kelly had been named KPMG’s new chairman and chief executive just a few days earlier.

As you know, the SEC is reportedly investigating KPMG’s audits of Xerox Corp.

“Upon becoming CEO of KPMG, Mr. O’Kelly asked to introduce himself to me, and we met briefly for that purpose,” said Pitt in a statement given to The Associated Press. “Neither Mr. O’Kelly nor I discussed any enforcement matter, including Xerox.”

Apparently, O’Kelly had a slightly different experience. According to published reports, he told KPMG employees last week in an E-mail that he and Pitt discussed the SEC’s investigation of the Big Five firm’s audits of Xerox. O’Kelly also told Pitt not to take any action, according to the reports.

“I wanted him to know the priority we place on KPMG’s relationship with the SEC and the importance of open dialogue,” O’Kelly’s E-mail reportedly said. “In that spirit, I expressed that we continue to stand by our audit work and client service teams…and strongly believe we fulfilled our professional responsibilities as independent auditors.”

O’Kelly is also said to have raised concerns that an SEC enforcement “would pose serious disruption at this juncture in the capital markets.”

But Pitt insists he did not discuss any enforcement matters in his meeting with O’Kelly.

The SEC is currently probing KPMG’s audits of Xerox, which allegedly inflated its earnings by about $1.5 billion. Last month the copier company agreed to pay a record $10 million civil penalty for its actions, and to restate its financial results going back to 1997.

In a statement issued Sunday night, O’Kelly said: “The meeting was arranged at my request to introduce myself to Chairman Pitt as KPMG’s new Chairman, and to ensure that Mr. Pitt was aware that my number one priority was for the firm to take a leadership position in helping advance reform for the industry.” O’Kelly went on to note that, “As a firm, we have been very public and forthright about our position on any action the SEC might take related to Xerox. I referenced a potential proceeding against KPMG at the very end of our meeting and that KPMG would take all necessary steps to protect our firm and its reputation.”

One CFO Sued, Another Resigns Two more CFOs are in hot water.

The SEC sued the former finance chief of Anicom, a cable-distribution company. The commission alleges that the CFO, along with five other company employees, inflated revenues by $38 million and net income by $20 million by reporting nonexistent sales. This according to a published report of a civil suit filed in the Northern District of Illinois.

Those being sued include former Anicom CFO Donald Welchko, vice president of accounting Renee LeVault, CEO Carl Putnam, and COO John Figurelli.

The alleged accounting violations reportedly took place from January 1, 1998, through March 30, 2000. The commission claims Anicom overstated net income by about $20 million.

According to published accounts, the SEC alleges that Putnam and Welchko misled two investigations into allegations of improper sales in October 1999 by directing employees to lie about their knowledge of the sales.

Putnam allegedly instructed an employee to tell the SEC, if it asked, that Anicom was performing an internal investigation. The commission claims Welchko also told employees to compile fraudulent figures for data that regulators were seeking.

Meanwhile, Peregrine Systems Inc. announced Monday that CFO and executive vice president of finance Matt Glass has resigned, along with chairman and CEO Steve Gardner. Peregrine, a software maker, stated the company will conduct an internal investigation into potential accounting inaccuracies.

The company said as much as $100 million in revenue may have been improperly recognized during 2000 and 2001. “These transactions were recorded initially as revenue from the company’s indirect channels and may have been written off in later quarters,” conceded the company in a statement.

Interestingly, Peregrine said the possible problems were brought to the attention of the audit committee by KPMG, the company’s independent auditors. KPMG was hired in April to replace Arthur Andersen.

Peregrine’s share price plunged more than 65 percent on the news, closing at just 89 cents per share. That’s quite a comedown: Peregrine stock had traded as high as $67 per share in early 2000 (adjusted for splits and dividends).

Peregrine also named Fred Gerson as acting CFO. Gerson currently serves as CFO of the San Diego Padres. He has held the CFO position with a number of public and private technology companies, including Marimba, Maxis, and Peter Norton Computing.

Andersen on Trial

A jury of nine men and seven women was selected Monday to hear the government’s charges of obstruction of justice against auditor Andersen.

Opening arguments are scheduled to begin today.

Also yesterday: Andersen agreed to pay $217 million to settle with the Baptist Foundation of Arizona. The settlement comes about a week after a trial had gotten under way in the case.

As CFO.com reported, Andersen’s prior settlement was rejected by the company’s insurance company.

The agreement resolves all litigation brought against Andersen by BFA investors, the BFA bankruptcy trustee, and state regulatory bodies.

About 11,000 investors—mostly elderly—lost an estimated $570 million when the foundation collapsed in what has been described as a giant Ponzi scheme.

The settlement would be the second-largest payout by one of the Big Five accounting firms. Investors in the foundation will recover about $175 million from the settlement, after about $42 million in attorneys’ fees, according to the company’s recent proxy.

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