ATM and voting machine maker Diebold and three of its former financial executives have been charged by the Securities and Exchange Commission with engaging in a fraudulent scheme to inflate the companys earnings.
The SEC separately filed an enforcement action against Diebold's former CEO seeking reimbursement of certain financial benefits that he received while Diebold was committing accounting fraud.
The SEC alleges that Diebold's financial management received "flash reports" sometimes on a daily basis comparing the company's actual earnings to analyst earnings forecasts. Diebold's financial management prepared "opportunity lists" of ways to close the gap between the company's actual financial results and analyst forecasts. Many of the opportunities on these lists were fraudulent accounting transactions designed to improperly recognize revenue or otherwise inflate Diebold's financial performance.
Diebold an Ohio-based company that manufactures and sells ATMs, bank security systems and electronic voting machines agreed to pay a $25 million penalty to settle the SEC's charges without admitting or denying the allegations. Diebold's former CEO Walden O'Dell agreed to reimburse cash bonuses, stock, and stock options under the "clawback" provision of the Sarbanes-Oxley Act.
The SEC's case against Diebold's former CFO Gregory Geswein, former controller and later CFO Kevin Krakora, and former director of corporate accounting Sandra Miller is ongoing.
According to the SEC's complaint against Diebold, filed in U.S. District Court for the District of Columbia, the company manipulated its earnings from at least 2002 through 2007 to meet financial performance forecasts, and made material misstatements and omissions to investors in dozens of SEC filings and press releases. Diebold's improper accounting practices misstated the company's reported pre-tax earnings by at least $127 million.
Among the fraudulent accounting practices used to inflate earnings and meet forecasts were improper use of "bill and hold" accounting; recognition of revenue on a lease agreement subject to a side buy-back agreement; manipulating reserves and accruals; improperly delaying and capitalizing expenses; and writing up the value of used inventory.
We are pleased that the settlement with the SEC is final, said Diebold president and chief executive officer Thomas W. Swidarski in a statement. Moving forward, we will continue to direct our energy and focus toward the essential work of improving our competitive position and creating value for all our stakeholders while maintaining effective financial controls within our processes.
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