UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Securities Exchange Act of 1934
Release No. 48134 / July 7, 2003
Accounting and Auditing Enforcement
Release No. 1812 / July 7, 2003
File No. 3-11171
In the Matter of
BARRY D. ROMERIL, ACCA (Former)
GREGORY B. TAYLER, CA,
| ORDER INSTITUTING ADMINISTRATIVE PROCEEDINGS PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS|
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Barry D. Romeril ("Romeril") and Gregory B. Tayler ("Tayler") (collectively, "Respondents") pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.1
In anticipation of the institution of these proceedings, the Respondents have submitted Offers of Settlement (the "Offers") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over them and the subject matter of these proceedings, and the findings contained in Section III(4) below, which are admitted, Respondents consent to the entry of this Order Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions ("Order"), as set forth below.
On the basis of this Order and Respondents' Offers, the Commission finds that:
- Romeril, age 59, was the Chief Financial Officer ("CFO") of Xerox Corporation ("Xerox") from 1993 until he retired in December 2001. Romeril was a member of The Association of Chartered Certified Accountants ("ACCA") in the United Kingdom from 1978 to 1994, and was also a fellow of the ACCA from 1988 to 1994.
- Tayler, age 45, has served in several positions at Xerox since 1997: he was Xerox's Director of Accounting Policy from March 1997 to April 1999; Assistant Treasurer, Global Capital Markets from May 1999 to March 2000; Vice President and Controller from April 2000 to November 2001; and Vice President and Treasurer from November 2001 to September 2002. Tayler is currently providing, among other things, transition assistance to Xerox Canada's CEO. Since 1993 Tayler has been a Chartered Accountant, Ontario Institute of Chartered Accountants and since 1995 he has been a Chartered Accountant, Institute of Chartered Accountants of British Columbia.
- Xerox was, at all relevant times, a New York corporation with its principal place of business in Stamford, Connecticut. Xerox is engaged in the business of manufacturing, selling and leasing document imaging products, services and supplies in the United States and 130 other countries. Xerox is a public company whose securities are registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 ("Exchange Act") and is required to file periodic reports with the Commission pursuant to Section 13 of the Exchange Act. Its securities are listed on the New York and Chicago Stock Exchanges and also are traded on the Boston, Cincinnati, Pacific Coast, Philadelphia, London and Switzerland exchanges.
- On June 5, 2003, the Commission filed a complaint against Respondents in Securities and Exchange Commission v. Paul A. Allaire, et al. (Civil Action No. 03 CV 4087 (DLC) (S.D.N.Y.) (June 5, 2003)), in the United States District Court for the Southern District of New York. Respondents neither admit nor deny the allegations in that complaint. On June 16, 2003, a final judgment was entered by consent against Romeril and Tayler, permanently enjoining them from committing violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 promulgated thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 promulgated thereunder. The final judgment ordered Romeril to pay $2,987,282 in disgorgement of ill-gotten gains, $1,227,688 in prejudgment interest thereon and a $1,000,000 civil money penalty. The final judgment ordered Tayler to pay $92,603 in disgorgement of ill-gotten gains, $32,397 in prejudgment interest thereon and a $75,000 civil money penalty.
- The Commission's complaint alleges, among other things, that, during 1997-2000, Romeril fraudulently misled investors about Xerox's true financial performance through the use of numerous accounting actions, most of which failed to comply with generally accepted accounting principles ("GAAP"), that accelerated the recognition of equipment revenues by approximately $3 billion and increased pre-tax earnings by approximately $1.4 billion. As alleged in the complaint, Romeril directed or allowed lower ranking defendants in Xerox's financial department to make accounting adjustments to results reported from operating divisions to accelerate revenues and increase earnings, including the use of accounting practices known internally within Xerox as margin normalization, return-on-equity, and price uplifts and lease extensions. In addition, Romeril, with the help of other senior Xerox financial executives, fraudulently established a $100 million reserve for "unknown risks" arising out of a 1997 acquisition by Xerox and Romeril knew and approved of the improper release of the reserve in later years to cover expenses unrelated to the acquisition. Romeril also authorized Xerox's use of $315 million of numerous other excess or cushion reserves and $157 million of interest income from tax refunds to manage Xerox's earnings in violation of GAAP. The complaint alleges that Romeril failed to disclose the use and financial impact of all of these accounting actions, as well as certain lease transactions that Xerox entered into in 1999 (known as Partnership Asset Strategy or PAS transactions) that resulted in substantial and material increases in its financial results and earnings trends at the expense of future periods.
- The Commission's complaint further alleges, among other things, that, during 1997-2000, Tayler misled Xerox investors by participating in and failing to disclose the use of Xerox's most material accounting actions, including margin normalization and return-on-equity, that accelerated equipment revenues and earnings in violation of GAAP. The complaint also alleges that Tayler fraudulently failed to disclose the use and financial impact of Xerox's 1999 PAS transactions. In addition, the complaint alleges that Tayler aided and abetted Xerox's use of and failure to disclose other non-GAAP accounting actions used to boost earnings, including price uplifts and lease extensions, retroactive increases to the net residual values of Xerox's machines and a $100 million acquisition reserve.
In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in the Respondents' Offers.
Accordingly, IT IS HEREBY ORDERED, effective immediately, that:
- Romeril is suspended from appearing or practicing before the Commission as an accountant.
- Tayler is suspended from appearing or practicing before the Commission as an accountant.
- After three (3) years from the date of this order, Tayler may request that the Commission consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as:
- a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission. Such an application must satisfy the Commission that Tayler's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or
- an independent accountant. Such an application must satisfy the Commission that:
||Tayler, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") or an organization providing equivalent oversight and quality control functions ("equivalent organization");|
||Tayler, or the firm, has received an unqualified report relating to his, or the firm's, most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section or equivalent organization; and |
||As long as Tayler appears or practices before the Commission as an independent accountant he will remain either a member of, or associated with a member firm of, the SEC Practice Section or equivalent organization, and will comply with all applicable SEC Practice Section or equivalent organization requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.|
- The Commission will consider an application by Tayler to resume appearing or practicing before the Commission as an accountant provided that his accountant status is current and he has resolved any disciplinary issues with the applicable board of accountancy. However, if the resolution of any disciplinary action by a board of accountancy is dependent on reinstatement by the Commission, the Commission will consider an application on its other merits. The Commission's review may include consideration of, in addition to the matters referenced above, any other matters relating to Tayler's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.
BY THE COMMISSION.
Jonathan G. Katz
||Rule 102(e)(3)(i) provides, in relevant part, that:|
The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of the rules and regulations thereunder.