By Kathleen Day

Washington Post Staff Writer

Thursday, February 23, 2006

Four former and current KPMG LLP accountants have agreed to settle civil charges that they helped Xerox Corp. engage in a multibillion-dollar scheme to manipulate earnings over four years, the Securities and Exchange Commission said yesterday.

Two of the men agreed to sanctions and were fined $150,000 each, a record for SEC civil penalties for individual auditors.

A third agreed to be sanctioned and to pay $100,000, and a fourth KPMG accountant was sanctioned but not fined.

None of the four admitted or denied guilt for failing to disclose what the SEC described as illegal acts they encountered as auditors of Xerox. The practices that they failed to disclose allowed the company to overstate revenue by $3 billion and overstate earnings by $1.2 billion from 1997 through 2000.

Pending approval by a federal judge, the settlement brings to a close the last of five suits the SEC brought in connection with Xerox’s filing of false financial statements. All told, the SEC has won $55.2 million in penalties and repayments of ill-gotten gain, including $400,000 announced yesterday.

SEC lawyers said the settlement with individual auditors underscores the resolve of the agency, which polices publicly traded companies, to hold individuals as well as corporations responsible for actions that mislead investors.

This case represents the SEC’s willingness to litigate important accounting fraud allegations against major accounting firms and their audit partners, even where the accounting was complex, said Linda Chatman Thomsen, the SEC’s director of enforcement. She said it reflects the seriousness with which the SEC regards the responsibilities of gatekeepers, such as accountants, lawyers and other outside consultants.

The terms of the settlement call for Ronald Safran, who continues to work at KPMG but is barred for three years from doing audits, to pay a civil penalty of $150,000. Michael Conway, who is retired from KPMG, also will pay $150,000 and be barred from performing audits for two years. Anthony Dolanski, who no longer works for KPMG, must pay a $100,000 fine and step down as chief financial officer of Internet Capital Group, an Internet investment company.

Thomas Yoho, who continues to work at KPMG, was not fined but censured, which means he will get a harsher fine if he breaks the law again.

Last April, KPMG, also without admitting or denying guilt, agreed to pay $22.5 million to settle civil charges that it helped Xerox break securities law. Two years earlier, in 2003, six former Xerox officials, including two of its former chief executives, agreed to pay $22 million to settle with the SEC. In 2002, Xerox paid $10 million to settle with the agency. Last fall, the agency settled with a fifth KPMG official, who paid $100,000 in what was then the highest fine the agency had imposed on an accountant.

Safran’s lawyer was unavailable for comment. Conway’s lawyer did not return telephone calls. Dolanski’s lawyer declined to comment. Yoho’s lawyer, Frank H. Wohl, said his client is happy to put this matter behind him and move on with his accounting career. KPMG spokesman George Ledwith said, All KPMG individuals have now reached an agreement with the SEC regarding the audits of Xerox’s financial statements.

SEC lawyers said a ruling by U.S. District Judge Denise L. Cote that led to yesterday’s settlement could be key for future cases. In December, she dismissed the defendants’ claim that none of them could be held liable because KPMG as an institution signed off on the Xerox financial statements, not individual auditors.

The Xerox fraud was a wide-ranging, four-year scheme to defraud investors, said Paul R. Berger, the SEC’s associate director of enforcement. Investors and the marketplace are the victims and deserve better from their corporate executives and auditor gatekeepers.