The Securities and Exchange Commission announced Wednesday that all four remaining defendants in the case against them and KPMG LLP, regarding earnings manipulation at Xerox Corp., have agreed to settle with the commission.
Three current or former KPMG partners agreed to permanent injunctions, payment of record civil penalties, and suspensions from practicing before the commission; a fourth agreed to censure.
“The settlements announced today, including the largest penalties ever imposed on individual auditors, reflect the seriousness with which the SEC regards the responsibilities of gatekeepers,” said director of enforcement Linda Chatman Thomsen, in a statement.
The commission had charged that from 1997 through 2000, KPMG permitted Xerox to “manipulate its accounting practices” to close a $3 billion “gap” between actual operating results and results reported to the investing public. During this period, Xerox used “topside accounting actions” at the end of financial reporting periods to increase equipment revenue and earnings through the improper acceleration of revenue from long-term leases of Xerox copiers and through manipulation of excess or “cookie jar” reserves.
Most of Xerox’s topside accounting actions violated generally accepted accounting principles, and all of them inflated and distorted Xerox’s performance but were not disclosed to investors, added the SEC. These undisclosed actions overstated Xerox’s equipment revenues by at least $3 billion and overstated earnings by about $1.5 billion during the four-year period, the regulator asserted.
The individuals who agreed to settle on Wednesday, subject to court approval, are Ronald Safran, the KPMG engagement partner on the Xerox audit for 1998 and 1999; Michael Conway, senior engagement partner for 2000; Anthony Dolanski, engagement partner for 1997; and Thomas Yoho, SEC concurring review partner for KPMG on the Xerox engagement from 1997 to 2000.
Without admitting or denying the SEC allegations, Safran, Conway, and Dolanski each consented to the entry of final judgments against them by the U.S. District Court for the Southern District of New York; Yoho agreed to censure. Safran will be suspended from practicing before the SEC for three years; Conway, for two years; and Dolanski, for one, the commission stated. In addition, Safran and Conway agreed to a civil penalty of $150,000 each; Dolanski, to a penalty of $100,000.
A fifth KPMG partner settled with the commission last October. Ten months ago, KPMG itself agreed to pay a total of $22.5 million to settle with the SEC. Xerox and six of its former executives have also settled with the commission.