Xerox Executive Blodgett to Pay $412,723 to SEC to Resolve Disputed ACS Revenue
According to a news release from The U.S. Securities and Exchange Commission (SEC), Lynn R. Blodgett, an executive vice president at Xerox, has agreed to pay the SEC $412,732 to resolve accounting-related charges, and a penalty of $52,000. The charges stem from an SEC investigation into accounting practices at Affiliated Computer Services (ACS), a Texas company that was acquired by Xerox in 2010 for $6.4 billion, and which provides business-process outsourcing.
The SEC charged Blodgett, along with another ACS executive, with mischaracterizing an arrangement with Xerox “to purport that it was conducting so-called ‘resale transactions’ to inflate ACS’s reported revenue prior to its acquisition by Xerox.
An SEC investigation found that then-ACS CEO Blodgett and then-ACS CFO Kevin R. Kyser caused the disclosure failures at ACS. Shortly before the end of its first quarter in fiscal year 2009, the SEC says ACS faced a situation where ACS’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. The SEC says 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. The SEC says 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.
In a statement, Xerox spokesman Bill McKee commented that the transactions “primarily occurred in periods prior to Xerox’s acquisition of ACS.”