|  | | 2005 News and Press Releases | | |
DISMISSAL NEWS:
District Court Denies Xerox Motion To Dismiss Fraud Suit; Carlson v. Xerox Corp., No. 00-1621 (D. Conn. July 13, 2005) ; (Motion For Extension Of Time July 27, 2005).- DEX 100247
Staff Writer
Securities Class Action Reporter. August 15, 2005
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EXCERPT: Finding that a group of investors pleaded facts adequate to sufficiently create an inference of scienter on the part of the Xerox Corp. and certain of its officers and directors, the U.S. District Court for the District of Connecticut denied the Xerox defendants' motion to dismiss class action securities fraud claims brought by those investors. In the late 1990's, Xerox was able to meet Wall Street's earnings expectations in the face of increasing competition from Japanese companies in the digital copier market only by engaging in massive accounting fraud. The details of this scheme began to come to light in June 2000, when Xerox announced that it would fail to meet its estimated second quarter earnings due to the "unexpected" discovery of bad debts in its Mexican subsidiary. Later that year, the company announced an SEC investigation into that subsidiary. A series of events involving the Xerox accounting standards then took place, culminating in the SEC's filing suit against the company in federal district court. Settlement of that case required Xerox to pay a $10 million fine and restate its financial results for the years 1997 to 2001. The fine was the largest ever paid by a company to settle with the SEC at that time, and the restatement included a reallocation of over $2 billion in equipment sales revenue. Following the SEC investigation into that fraud, a group of Xerox investors filed a class action securities fraud suit against Xerox on the basis of statements made by SEC officials. Specifically, the plaintiffs charge that Xerox, a number of its officers and the accounting firm KPMG with orchestrating a four-year scheme to disguise the company's true operating performance, and to create the illusion that its operating results were substantially better than they really were. The Xerox defendants moved to dismiss the suit, claiming that the plaintiffs failed to satisfy the requirements for pleading scienter. Plaintiffs' allegations lead to a strong inference of scienter. The district court began by denying the Xerox defendants' motion to dismiss. The plaintiffs at a minimum alleged facts constituting strong circumstantial evidence of recklessness based on those defendants' knowledge of facts and access to information contradicting the public statements at the base of this dispute. |
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