SEC Whacks Texas Execs for $675,000

DALLAS (CN) - A Xerox executive and a former CFO of Dallas-based Affiliated Computer Services will pay $675,000 to settle claims that they inflated company revenue before ACS was purchased by Xerox, the SEC said Thursday.

Lynn R. Blodgett, an executive vice president at Xerox and ACS CEO, and Kevin R. Kyser, former ACS CFO, agreed to disgorge $569,327, and pay $52,000 apiece in penalties.

Neither man had to admit the findings in the SEC cease-and-desist-order

ACS, an information technology service provider and business process outsourcer, was purchased by Xerox in 2009 for $6.4 billion.

Federal investigators said ACS's revenue for the first quarter of fiscal year 2009 was about to fall short of company guidance and 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 said in a statement. "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."

ACS failed to disclose the "resale transactions" as the largest contributors to its internal revenue growth on its Form 10-Q, the SEC said.

"In subsequent quarters, ACS disclosed these transactions as 'information technology outsourcing related to deliveries of hardware and software," the order states. "This description did not accurately disclose the nature of these transactions and falsely suggested that they were executed as part of existing ACS outsourcing contracts."

David R. Woodcock, director of the SEC's Fort Worth Regional Office, said ACS put itself in pre-existing transactions "without adding value" and 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," Woodcock said. "This enforcement action holds them accountable for failing to uphold that responsibility."

Xerox spokesman Bill Mckee said the allegations against Blodgett did not include fraud.

"The transactions primarily occurred in periods prior to Xerox's acquisition of ACS," Mckee said Thursday evening. "We previously announced (via Form 8-K Report filed on March 24, 2014) that Mr. Blodgett stepped down as president of Xerox Services effective April 1, 2014 and will retire at the end of the year."

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