The SEC's complaint alleges that from 1997 to 2000, Xerox used a host of undisclosed "accounting actions" to meet or exceed Wall Street expectations and disguise its true operating performance from investors. The "accounting tricks" were approved, implemented and tracked by senior Xerox management. 

"Xerox used its accounting to burnish and distort operating results rather than to describe them accurately," said Stephen M. Cutler, the SEC's Director of Enforcement. "For Xerox, the accounting function was just another revenue source and profit opportunity. As a result, investors were misled and betrayed."

Most of the company's accounting actions, alleges the SEC complaint, violated generally accepted accounting principles (GAAP), accelerated the company's recognition of equipment revenue by over $3 billion and increased its pre-tax earnings by approximately $1.5 billion.

Xerox agreed to settle the SEC's complaint by consenting to the entry of an injunction for violations of the antifraud and other provisions of the federal securities laws; restating its financials for the years 1997 to 2000; agreeing to a special review of its accounting controls; and paying an unprecedented $10 million penalty. The firm will not admit wrongdoing.

The penalty was so high, according to the SEC, because Xerox did not fully cooperate during the course of the SEC's two year investigation into its accounting practices.

The SEC is considering filing charges against Xerox's auditing firm, KPMG, who Xerox dropped in October and replaced with PricewaterhouseCoopers.

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