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. Last Updated: 07/27/2016

Xerox Reveals $6.4Bln Overstatement

WASHINGTON -- Xerox Corp. announced Friday that accounting errors forced it to restate $6.4 billion in revenue for the past five years, more than twice the $3 billion anticipated three months ago when the company settled fraud charges with the U.S. Securities and Exchange Commission.

The world's biggest copier maker overstated earnings by $1.4 billion in 1997 through 2001, the company said. That is about the amount the SEC specified in a civil complaint it filed in April, when the agency simultaneously agreed to settle the charges. Under that agreement, Xerox did not admit or deny wrongdoing, but agreed to pay a $10 million fine -- the largest ever involving alleged financial reporting fraud.

To comply with the settlement, the company conducted a review of its finances that resulted in the changes announced Friday.

Xerox spokeswoman Christa Carone said the company's mistake was booking the revenue several years too soon. She said it was not a case of phony revenues or transactions.

The SEC and Xerox played down the size of the revenue restatement.

"We were not surprised to learn that correction of accounting errors beyond those enumerated in the SEC's complaint prove to be necessary," said Paul Berger, an assistant director in the SEC's enforcement division. He said the agency knew when it ordered Xerox to do a comprehensive review of its books that additional revenue might have to be reclassified.

Some observers were less charitable, noting the recent disclosure of WorldCom Inc.'s improper accounting of billions of dollars of expenses, Arthur Andersen LLP's criminal conviction and the indictment of former chief executives from ImClone Systems Inc. and Tyco International Ltd.

"It boggles the mind that a company this size and its executives can make an error of $6.4 billion and no one sees it until years later," said Lynn Turner, who was chief accountant of the SEC in the Clinton administration. "It should make investors wonder if the auditors would even notice Mount Everest if they were driving by it."

The continuing revelations of corporate accounting fraud and other scandals, coming during a slowing economic recovery, have taken a toll on Wall Street this year. Although the major stock indexes were little changed Friday, the Standard & Poors 500 stock index, a broad measure of the overall market, fell 13.8 percent in the first six months of the year, its worst first-half loss since the spring of 1970 when the United States was entering a recession.

Xerox's stock price, which rose to more than $60 a share in mid-1999, closed Friday at $6.97 a share, down $1.03 from the day before.

In April, the SEC said Xerox had been using accounting techniques that did not comply with generally accepted principles, to fraudulently accelerate the booking of billions of dollars in revenue from equipment rentals. The company agreed to stop using such techniques.

The SEC said in its complaint that Xerox engaged in the accounting scheme to meet earnings targets expected by Wall Street investors, and noted that "compensation of Xerox senior management depended significantly on their ability to meet targets."

The SEC is considering similar charges against Xerox's former auditing firm, KPMG LLP, and some top Xerox executives, including former chairman Paul Allaire and former chief financial officer Barry Romeril, who retired at the end of last year during the SEC investigations.

Lawyers for Allaire and Romeril did not return telephone calls seeking comment. KPMG denies wrongdoing. "We continue to stand behind our audit work and our engagement teams," spokesman George Ledwith said in a statement Friday.