[Anonymous]

Oem Vp Busted By U.S. Security Exchange Commission
Outgoing Xerox VP agrees to pay $465K to SEC

A high-ranking Xerox Corp. executive has agreed to pay more than $464,000 and a former business associate will pay more than $208,000 in charges and penalties stemming from a U.S. Securities and Exchange Commission investigation into accounting practices at Affiliated Computer Services Inc.

Lynn R. Blodgett, an executive vice president at Xerox, has agreed to pay $412,732 to resolve SEC charges and a penalty of $52,000, according to an SEC news release. Meanwhile, Kevin R. Kyser, former CFO of ACS, agreed to pay $156,595 to settle the charges and a penalty of $52,000. A third person, a current employee questioned in the matter, did not receive any penalties.

Last year, the SEC began investigating accounting issues at Dallas-based ACS prior to its acquisition by Xerox in 2010. Specifically, the agency said Blodgett, former CEO of ACS, and Kyser mischaracterized an arrangement with an equipment manufacturer to inflate the company's reported $124.5 million revenue in fiscal 2009.

"ACS positioned itself in the middle of pre-existing transactions without adding value, but still improperly reported the revenue. Blodgett and Kyser knew the truth about these deals, and they were responsible for ensuring that ACS accurately disclosed the full story to investors," David R. Woodcock, director of the SEC's Fort Worth Regional Office and chair of the agency's Financial Reporting and Audit Task Force, said in a statement. "This enforcement action holds them accountable for failing to uphold that responsibility."

In the settlement, neither Blodgett nor Kyser admitted to or denied the SEC findings. Also, the SEC said Xerox cooperated with the investigation, and neither it nor ACS will face any charges.

Blodgett was former head of ACS prior to becoming president of Xerox's services business. He announced earlier this year that he would retire from Xerox effective Dec. 31.

In a statement, Xerox spokesman Bill McKee noted the transactions under investigation "primarily occurred in periods prior to Xerox's acquisition of ACS." He deferred any questions regarding Blodgett to the executive's attorney, who did not immediately respond to a request for comment.

SEC Charges Two Information Technology Executives With Mischaracterizing Resale Transactions to Increase Revenue

FOR IMMEDIATE RELEASE
2014-179 Washington D.C., Aug. 28, 2014 —The Securities and Exchange Commission today charged two executives at a Dallas-based information technology company with mischaracterizing an arrangement with an equipment manufacturer to purport that it was conducting so-called “resale transactions” to inflate the company’s reported revenue.

An SEC investigation found that then-CEO Lynn R. Blodgett and then-CFO Kevin R. Kyser caused the disclosure failures at Affiliated Computer Services (ACS), which has since been acquired by Xerox Corporation.  ACS provided business process outsourcing and information technology services.  Shortly before the end of its first quarter in fiscal year 2009, ACS faced a scenario where the company’s revenue was set to fall short of company guidance and consensus analyst expectations, so ACS arranged for an equipment manufacturer to re-direct through ACS pre-existing orders that the manufacturer already had received from one of its customers.  This gave the appearance that ACS was involved in resale transactions, but ACS in fact had no such involvement.  ACS went on to report $124.5 million in fiscal year 2009 revenue from these transactions as though it had resold the equipment itself. 

Blodgett and Kyser have agreed to pay nearly $675,000 to settle the SEC’s charges that they and ACS did not adequately describe the arrangement in its financial reporting, and the purported revenue in turn allowed ACS to publicly report inflated internal revenue growth (IRG).  Blodgett and Kyser emphasized the inflated IRG as a key metric in earnings releases and other public statements to investors, and a portion of their annual bonuses was linked to IRG.

“ACS positioned itself in the middle of pre-existing transactions without adding value, but still improperly reported the revenue. Blodgett and Kyser knew the truth about these deals, and they were responsible for ensuring that ACS accurately disclosed the full story to investors,” said David R. Woodcock, director of the SEC’s Fort Worth Regional Office and chair of the agency’s Financial Reporting and Audit Task Force.  “This enforcement action holds them accountable for failing to uphold that responsibility.”

Blodgett and Kyser consented to the SEC’s order to cease-and-desist from violating Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Securities Exchange Act of 1934, and Rules 12b-20, 13a-1, 13a-11, 13a-13, and 13a-14.  Without admitting or denying the findings, they have agreed to collectively disgorge IRG-related bonuses plus prejudgment interest totaling $569,327, and they each must pay $52,000 penalties.

The SEC’s investigation was conducted by James E. Etri, Todd B. Baker, and David R. King of the Fort Worth office.

[Author]

September 2, 2014 at 11:51 AM