In April 2002, SEC files a complaint against Xerox alleging that Xerox used accounting tricks to deceive public from 1997 to 2000. Over this period Xerox improperly classified over $6 billion in revenue, leading to an overstatement of earnings by nearly $2 billion.The issue was timing of recognition of revenue, mostly due to improper lease accounting, Xerox booked revenue when leases were entered into rather than recording periodic retal payments. It was a “zero sum game”, in the first few years the irregularity increased the revenue and in the later years the revenue was reduced due to the accounting manipulation. The SEC investigation noted that “compensation of Xerox senior management depended significantly on their ability to meet [earnings] targets.” Because of the accounting manipulations, top Xerox executives were able to cash in on stock options valued at an estimated $35 million.
Apart from restating the financial results for the year 1997 through 2000, Xerox Corporation agreed to pay a $10 million penalty. On June 5, 2003, six Xerox senior executives accused of securities fraud, including its former chief executive officer, Paul A. Allaire and G. Richard Thoman, and its former chief financial officer, Barry D. Romeril, agreed to pay $22 million in penalties, disgorgement, and interest.
