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Mon, May 20, 2002 - Page 21 News List

SEC investigates Xerox following accounting flaws

THE NUMBERS GAME SEC Chairman Harvey Pitt met with Chairman and Chief Executive Anne Mulcahy on the advice of an attorney, US media said


The head of the US' Securities and Exchange Commission met privately with the Xerox Corp chairman in December while the SEC was investigating the office-equipment maker for alleged accounting fraud, a company spokeswoman said Saturday.

Disclosure of SEC Chairman Harvey Pitt's meeting with the Xerox chief follows public criticism of his April meeting with the head of accounting firm KPMG -- whose audits of Xerox are being investigated by the SEC and which Pitt represented as a private securities lawyer.

SEC spokeswoman Christi Harlan, who declined comment on the meeting, said Pitt "has done nothing to breach his ethics requirements."

The government watchdog group Common Cause recently called on Pitt to resign, citing what it called "a pattern of actual and apparent conflict of interest ... [that] undermines citizen and investor confidence."

It would be very unusual, and generally considered improper, for an SEC chairman, who is the government's top securities regulator, to discuss a pending investigation with an executive of the company involved.

As a prominent attorney before President George W. Bush named him to head the SEC last spring, Pitt represented major Wall Street brokerage companies, the New York Stock Exchange, all Big Five accounting firms, including KPMG and Arther Andersen LLP, and British insurer Lloyd's of London.

The SEC sued Xerox last month in federal court, alleging that the blue chip company used a variety of what the government called "accounting tricks" and "accounting opportunities" to boost earnings by some US$1.5 billion and hide its true performance from investors.

Xerox agreed to pay a US$10 million civil penalty -- the biggest ever for alleged financial fraud by a publicly traded company -- and to revise financial statements back to 1997 to settle the SEC's allegations of accounting fraud by the world's largest copier company. Xerox, based in Stamford, Connecutict, neither admitted to nor denied wrongdoing in the settlement.

Pitt met on Dec. 7 with Xerox Chairman and Chief Executive Anne Mulcahy, at Mulcahy's request, Xerox spokeswoman Christa Carone said. Carone, who declined further comment, was confirming a report in Saturday's Washington Post.

The Post, citing unnamed sources, also said that Pitt agreed to the meeting against the advice of an SEC attorney. SEC staff told Mulcahy before the meeting that the agency's investigation of Xerox was off limits as a topic, but Mulcahy raised it anyway and Pitt listened to her but did not respond, according to the report.

Stephen Cutler, the SEC's enforcement director, told the Post that Pitt had supported an enforcement action against Xerox that was stronger than what agency attorneys first recommended.

In a recent letter to lawmakers who asked him for information about his meeting with KPMG's chairman and chief executive officer, Pitt said he has met with many company officials as part of his job but that he has always adhered to ethics rules.

Pitt said he did nothing improper in the brief meeting with Eugene O'Kelly on April 26 and did not discuss Xerox or any enforcement matters. He also promised to act to avoid any appearance of impropriety in the future.

Last week, O'Kelly appeared to have backed off his earlier statements, telling the lawmakers he did not mention by name the SEC's investigation of Xerox in his meeting with Pitt.

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