In August 2004, SEC files an enforcement action against Bristol- Myers Squibb alleging that Bristol-Myers used earnings management schemes to distort the true performance of the company and harmed the company’s shareholders. During 2000 and 2001 the company engaged in fraudulent schemes to inflate its sales and earnings in order to create the false appearance that the company had met or exceeded its internal sales and earnings targets and Wall Street analysts’ earnings estimates. The company inflated it’s 2001 revenue by $1.5B by channel stuffing (mainly two of its wholesalers McKesson and Cardinal). The company had to reduce reduced net sales by more than $1.4 billion for 2001, $678 million for 2000, and $376 million for 1999. The company increased sales for the six months ended June 30, 2002 by $653 million. It also reduced net earnings from continuing operations by $376 million, $206 million and $331 million in the years ended 2001, 2000 and 1999, while net earnings from continuing operations were increased by $201 million in the six months ended June 30, 2002. The company also agreed to pay $100 million civil penalty and $50 million to be set aside for shareholder’s who were harmed by the fraud.
December 28th, 2007
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.
December 28th, 2007