SEC May Proceed Against KPMG

KPMG is in talks with the Securities and Exchange Commission about possible securities violations the fifth-largest U.S. accounting firm may have committed while serving as auditor for Xerox Corp.

“We’ve been talking with the SEC staff about the possibility of a proceeding against the firm,� KPMG spokesman George Ledwith said. “No final decisions have been made.�

John Heine, a spokesman for the SEC, declined to comment.

Xerox, the largest copier maker, last week tentatively agreed to pay a record $10-million fine and restate results since 1997 to settle claims that it prematurely booked revenue from equipment leases in a manner that could have inflated sales and profit. The settlement ended an almost two-year investigation of the company.

Xerox resisted SEC Chairman Harvey Pitt’s effort to have companies cooperate with investigators, a person knowledgeable about the investigation said. Pitt said in October that companies may get reduced penalties when they disclose abuses.

“It’s part of the ratcheting up of the concern over auditing,� Alan Bromberg, a securities law professor at Southern Methodist University, said about the possible action against KPMG.

Enron Corp.’s collapse last year and the indictment of its auditor, Andersen, has led to increased government scrutiny of complex financial reporting.

KPMG, Xerox’s auditor for 30 years, delayed signing Xerox’s 2000 annual report and, at the time, insisted on a broader internal review of the company’s accounting after information from the SEC investigation was shown to KPMG, Ledwith said. Xerox fired KPMG five months after the auditor signed off on the filing.

“We are bewildered if this is evidence of what happens after we did the right thing--served our role as independent auditors, raised the right questions and took difficult tough positions with our clients,� Ledwith said.

Earlier Wednesday, the Wall Street Journal reported that KPMG partner Michael Conway, who helped lead the Xerox audit, received a so-called Wells notice from the SEC giving him a chance to prepare a case against being charged. Ledwith said he was “not at liberty to discuss an individual.�

Paul Allaire, Xerox’s former chairman and chief executive, along with former Chief Financial Officer Barry Romeril, also were notified by the SEC of possible sanctions, the paper reported, citing people close to the investigation. Allaire and Romeril couldn’t be reached for comment.