Sightings from The Catbird Seat

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From The Conspirators’ Hierarchy (4th edition – Copyright 1997):


By Dr. John Coleman

Certainly a fair number of us are aware that the people running our government are not the people who are really in control of political and economic matters, domestic and foreign. This has led many to seek the truth in the alternative press, those newsletter writers who like me, have sought, but not always found, what it is that is making the United States terminally ill.

“Seek and ye shall find” has not always been the case with this group. What we did find was that the people walk in great darkness, mostly not caring or bothering to find out where their country is headed, firm in the belief that it will always be there for them. This is the way the largest population group has been manipulated to react, and their attitude plays right into the hands of the secret government.

We frequently hear about “they” doing this, that or the other. “They” seem literally to be able to get away with murder. “They” increase taxes, and send our sons and daughters to die in wars that do not benefit our country. “They” seem above our reach, out of sight, frustratingly nebulous when it comes to taking action against “them.” No one seems able to clearly identify who “they” are. It is a situation that has pertained for decades.

During the course of this book, we shall identify the mysterious “they” and then, after that, it is up to the people to remedy their situation. I hold no aspirations of becoming a political leader.

On 30 of April, 1981, I wrote a monograph disclosing the existence of the Club of Rome identifying it as a Committee of 300 subversive body. This was the first mention of both of these organizations in the United States. I warned readers not to be fooled by the feeling that the article was far-fetched and I drew a parallel between my article and the warning issued by the Bavarian government when the secret plans of the Illuminati fell into its hands….

Many of the predictions made in that 1981 article have since come to pass . . .

In what is in fact an open conspiracy against God and man, (to use the words of H.G. Wells), which includes enslaving the majority of humans left on this earth after wars, plagues and mass murder have done with them, is indeed becoming more open. In the intelligence community, it is taught that the best way to hide something is to place it in open view….

The upper-level parallel secret government does not operate from dank basements and secret underground chambers. It places itself in full view in the White House, Congress, in Number 10 Downing Street and the Houses of Parliament….

These men are IN OPEN VIEW. These men are the servants of the One World Government-New World Order.

Like the rapist who stops to offer his victim a friendly ride, he does not LOOK like the monster he is. If he did, his intended victim would run off screaming in fright.

The same applies to government at all levels. Former President George Bush does not LOOK like a dutiful servant of the upper-level parallel government, but make no mistake about it, he is as much a MONSTER as are those horrors found in horror-movies.

Stop for a moment and consider how President Bush ordered the brutal slaying of 150,000 Iraqi troops, in a convoy of military vehicles carrying white flags, on their way back to Iraq under Geneva Convention rules of agreed disengagement and withdrawal. Imagine the horror of the Iraqi troops when, in spite of waving their white flags, they were mowed down by American aircraft.

In another part of the front, 12,000 Iraqi soldiers were buried alive in trenches they occupied. Is that not MONSTROUS in the truest sense of the word?

From where did President Bush get his orders to act in this MONSTROUS fashion? He got them from the Royal Institute for International Affairs (RIIA) who received its mandate from the Committee of 300, also known as the “Olympians.”

As we shall see, even the “Olympians” do not hide their faces. Often times they put on a show which could be likened to the Paris Air Show, even as conspiracy buffs spend their time in a fruitless search of the wrong places and in the wrong direction. Have you ever noticed how Queen Elizabeth II performs the ceremonial opening of the British Parliament? There, in full view, is the head of the Committee of 300. Have you ever witnessed a swearing-in ceremony of a United States President? There, in full view, is another member of the Committee of 300….

Who are the planners and plotters who serve the mighty all powerful Committee of 300? The better-informed of our citizens are aware that there is a conspiracy and that the conspiracy goes under various names such as the Illuminati, Freemasonry, the Round Table and the Milner Group….

The problem is that real hard information on the treasonous activities of member of the invisible government is very hard to come by.

I quote the profound statement made by the prophet Hosea, which is found in the Christian Bible: “My people perish for lack of knowledge.”…

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Some of these [Committee of 300] companies include:

Rank Organization
Xerox Corporation
Atlantic Richfield
British Petroleum
Royal Dutch Shell
Marine Midland Bank
Lehman Brothers
Kuhn Loeb
General Electric
Westinghouse Corporation
United Fruit Company

… and a great many more

MI6 ran a large number of these companies through British intelligence, stationed in the RCA building in New York, the headquarters of its chief officer for North American Operations, Sir William Stephenson. Radio Corporation of America (RCA) was formed by G.E., Westinghouse, Morgan Guarantee and Trust (acting for the British Crown), and United Fruits, back in 1919, as a British intelligence center.

RCA’s first president was J.P. Morgan’s Owen Young, after the Young Plan was named. In 1929, David Sarnoff was appointed to run RCA….

A network of Wall Street banks and brokerage houses takes care of the stock market for the Committee, and prominent among these are: Blyth, Eastman Dillon, the Morgan Groups, Lazard Freres and Kuhn Loeb Rhodes.

Nothing happens on Wall Street that is not controlled by the Bank of England, whose instructions are relayed through the Morgan Bank and then put into action through key brokerage houses, whose top executives are ultimately responsible for carrying out Committee directives….

All three major television networks came as spinoffs from RCA, especially the National Broadcasting Company (NBC), which was closely followed by the American Broadcasting Company (ABC), in 1951.

The third big television network was Columbia Broadcasting System (CBS), which like its sister companies, was, and still is, dominated by British intelligence. William Paley was trained in mass brainwashing techniques at the Travistock Institute prior to being passed as qualified to head CBS….

All three major networks are represented on the Committee of 300 and are affiliated with the giant of the mass communication business, Xerox Corporation of Rochester, New York, whose Robert M. Beck holds a seat on the Committee.

Beck is also a director of the Prudential Life Insurance Company, which is a subsidiary of the London Prudential Assurance Company Limited.

Others on the board of Xerox are Howard Clark, of the American Express Company, one of the main conduits for moving drug money through “travelers checks,” former Secretary of the Treasury William Simon, and Sol Linowitz, who negotiated the fraudulent Panama Canal Treaty for the Committee….

Another Xerox board member is Robert Sproull, who is of real interest, because as president of the University of Rochester, he allowed the Travistock Institute, working through the CIA, to use the university’s facilities for the 20 year MK-Ultra LSD experiments.

Some 85 other universities in the United States also allowed their facilities to be misused in this manner….

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June 6, 2003


The Courier-Journal

The Securities and Exchange Commission yesterday charged former Xerox chief Paul Allaire and five other ex-Xerox Corp. executives with civil securities fraud over accounting methods that the regulatory agency said overstated earnings for the huge copier maker.

The six men settled the civil suit with a $22 million payment that includes penalties and forfeiting profits, the SEC announced.

They did not admit to or deny the allegations.

Others charged were G. Richard Thoman, former president and chief operating officer; Barry D. Romeril, former chief financial officer; Philip D. Fishbach, former controller; Daniel S. Marchibroda, former assistant controller; and Gregory B. Tayler, former director of accounting policy.

Xerox shares closed down 2 cents at $11.25.

< < < FLASHBACKS < < <

Paul A. Allaire – Former CEO of Xerox Corp.

In 1998, Paul Allaire raked in over $5.9 million in salary, bonus and other compensation from Xerox. Add in over $7 million in stock option grants and Alliare’s take for the year was over $13 million. And Mr. Alliare has over $78 million in unexercised stock options from previous years.

Allaire, who had been chairman since 1991, retired from the board on December 31, 2001. On Dec. 3, the Board of Directors elected President and Chief Executive Officer, Anne M. Mulcahy, to the additional post of chairwoman.

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Equity No. 2048 – Findings of Fact and Conclusions of Law – Petition For Removal of Trustee Marion Mae Lokelani Lindsey: . . .

In 1996, Xerox Corp paid for Trustee Lindsey and her husband’s airfare, lodging, and food to attend the Olympics in Atlanta, Georgia. . . .

At the time, Xerox was a Kamehameha Schools/Bishop Estate vendor. . . .

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VMS Realty – a Chicago-based real estate firm.

January 26, 2001

Maui Hyatt sold for $200 million

By Andrew Gomes, Advertiser Staff Writer

New York based private investment bank The Blackstone Group has contracted to buy the Hyatt Regency Maui Resort for an estimated $200 million from KM Hawaii Inc., an affiliate of Japan-based transportation company Kokusai Jidosha, according to people familiar with the deal….

Founded in 1985 in part by the former chief executive of Lehman Brothers, Blackstone has been looking for upscale hotel investments in Hawai`i for several years. In 1998, the company unsuccessfully pursued one of Waikiki’s finest, the Halekulani.

People with knowledge of the Maui Hyatt deal said a purchase agreement for the 806-room Ka’anapali hotel —- Maui’s largest —- has been reached, and said Hyatt, wwhich manages the property with about 1,000 employees, may be taking a small ownership interest in the hotel in exchange for a long-term management contract with Blackstone. . . .

If completed, the Hyatt sale would follow sales of four other major properties in 1998: the Maui Marriott Resort for $152.5 million; the Westin Maui for $132 million; the Grand Wailea for $263.5 million; and the Kea Lani for an undisclosed amount.

The Hyatt Regency Maui, trophy of the Ka’anapali resort, also has been attractive to buyers. It was developed for $80 million in 1980 by luxury resort developer Christopher Hemmeter and sold to KM Hawai’i by Chicago real estate firm VMS Realty for $325 million in 1987.

KM Hawai’i spent about $30 million on renovations in 1990 and 1996. Last year, the hotel opened a $3.5 million spa….

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From Merrill Lynch: The Cost Could Be Fatal, by Keith Schooley:


When I joined Merrill Lynch in July 1991, I had the impression the firm was managed with impeccable integrity and tahe highest regard for ethics. As a condition of employment I was required to sign a document that stated I had read the firm’s Guidelines for Business Conduct and accepted the obligation to follow the guidelines set forth, including: “Merrill Lynch asks and requires that every employee make a personal commitment to the observations of the highest ethical standards and exercise of proper judgment in all aspects of his or her business dealings.”

It was this reputation for integrity Merrill Lynch had so masterfully burnished that was a major factor in my decision to become a stockbroker with the firm.

One of the first incidents that made me pause concerned one of my fellow FCS, Bazzelle. Right around the time I received my license, Bazzelle had been orally advising some of his former Prudential Securities clients in regard to a real estate partnership, VMS Mortgage Investors Fund.

This partnership had guaranteed its investors high income for three years, then a return of the original investment. Instead, it simply collapsed, losing most of the investors’ principal.

Bazzelle was now suggesting these clients contact an attorney who could possibly enhance the value of their investment in the VMS debacle. He also contacted these clients in writing. The letters, which were not on Merrill Lynch letterhead, were sent in several boxes to the Enid office by the attorney involved….

When Prudential Securities learned what its former FC was doing, it complained to Merrill Lynch. Merrill Lynch promptly asserted Bazzelle violated firm policy in some way, perhaps by making his suggestions to these clients in writing without management approval. Even though the letters were not on Merrill Lynch letterhead, as a result of this situation, Bazzelle was fired….

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From Mills Law Firm website ( http://www.millslawfirm.com/media/media05.html ):

Couple’s class-action suit settled for $98.5 million

by Mary Fricker

A $98.5 million settlement reached in Chicago in a class-action suit begun by a Santa Rosa couple could be shared by 165,000 real estate investors.

The settlement reached Monday is one of the five largest securities class-action settlements in U.S. history, according to San Rafael attorney Robert Mills, who represented David and Ilene Albert. . . .

“I’m so glad for the part that I played in this,” David Albert said Wednesday. “I’m glad for the rest of the investors. It’s not often that you can take an action like this and have it turn out so well. “

The defendants in the case were Chicago-based VMS Realty Partners, once a high-flying real estate syndicator, and more than 45 associates and affiliates involved in selling sophisticated real estate investments.

The case took two years and produced 20 million documents that a team of attorneys, including Mills, had to warehouse in Chicago, enter into computers and analyze.

Although the Albert’s started the case alone in 1989, a flood of other lawsuits soon followed. A judge eventually consolidated the suits into one case with about 30 plaintiffs, 50 defendants and 39 law firms.

“I hadn’t the slightest idea when I started how big this would be,” Albert said. “But slowly I began to see the enormity of the thing.”

The plaintiffs alleged in general that the VMS empire engaged in a pattern of deception to attract investors. The defendants, in agreeing to the settlement, did not admit wrongdoing.

The $98.5 million will be divided as follows:

As many as 165,000 shareholders will share $45 million in cash, which is already in escrow. The exact amount that each investor, including the Albert’s, will receive depends upon how many respond to notices of the settlement, Mills said.

Sources close to the case estimated that if most investors respond, they will get about 15 to 30 percent of their original investment.

Most of the shareholders own stock in eight troubled VMS investment funds. Those funds will receive money, notes, real estate and other benefits worth at least $48.5 million, in a complex workout of the labyrinthine VMS empire.

The shareholders hope that with the $28.5 million infusion, the funds will be able to survive and eventually return a profit. The funds severed their ties with VMS Realty Partners last year and changed their name to Banyan. . . .

The funds’ share of the $98.5 million that must be paid in the settlement is $25 million to $30 million, so they will pay out in cash about what they will receive in assets from the settlement.

Plaintiffs’ attorneys will be paid $25 million, by court order.

The Albert’s bought shares in VMS Mortgage Investors Fund in 1988, and by June 1989 they were concerned enough about the performance of their investment to contact Mills, who specializes in representing small investors in securities litigation.

Mills brought in the nation’s leading law firm in shareholder litigation, Milberg Weiss Bershad Specthrie & Lerach of New York and San Diego.

Among the defendants in the VMS case were numerous VMS entities – partnerships, trusts, mortgage companies and others; former VMS officers, directors and trustees; Prudential-Bache Securities Inc. (now Prudential Securities, Inc.); several Xerox subsidiaries; securities brokers; real estate appraisers; accountants; and other professionals associated with the VMS operation.

Prudential-Bache was the key brokerage house marketing the VMS investments, and Xerox Corp.’s credit subsidiary was a partner-investor.

The plaintiffs alleged VMS and its associates failed to disclose to investors the riskiness of the investment, issued deceptive prospectuses, hid financial problems and overvalued real estate.

They decided to settle, they said, because of the generous terms, the financial weakness of some of the defendants and the difficulty in proving fraud by the defendants in the complex transactions, among other reasons.

Defendant attorney Barry Gross in Chicago said the defendants settled because the funds’ stock was depressed by the litigation and they believed it was time to move forward.

Gross said the stock value of the funds has gone up more than $40 million in the two months since it was first announced in September that a settlement was in the works.

For more, GO TO > > > The Blackstone Group; A Nest on Shaky Ground; Predators in Paradise

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October 5, 2001

Xerox Retains PricewaterhouseCoopers as New Accountants

Business Editors/High Tech Writers

STAMFORD, Conn.–(BUSINESS WIRE)–Oct. 5, 2001–Xerox Corporation today announced that PricewaterhouseCoopers LLP has been named the company’s independent accountants for the fiscal year ending December 31, 2001, replacing KPMG LLP.

“KPMG and Xerox have had a long and important relationship,” said Paul A. Allaire, Xerox chairman. “While Xerox appreciates their service on our behalf, the Board and its Audit Committee believe it is appropriate at this time to bring in new accountants. We fully expect a smooth and seamless transition to PricewaterhouseCoopers.”

Xerox today is filing a Form 8-K with the Securities and Exchange Commission detailing the change in the company’s independent auditor.

The Audit Committee and the Board of Directors approved this week the company’s decision to change independent accountants.

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March 7, 2002

KPMG hits out at PwC over Xerox

By Alex Miller

KPMG has hit out at rival PricewaterhouseCoopers after becoming the latest firm to become embroiled in an accountancy scandal, after its audit client Xerox was accused of overstating its revenues.

The Big Five firm has released a statement stating it stands by its company’s financial statements for 2000 and the restated statements for 1997, 1998 and 1999, despite the photocopying giant including income from leasing up front rather than spread over a number of years.

Xerox sacked the firm in October last year and replaced it with PwC.

KPMG, said in a statement: ‘KPMG has not yet seen Xerox Corporation’s 10-K filing with the Securities and Exchange Commission, although we have seen Xerox acknowledge that there will be a reallocation of revenues in a further restatement. Our position remains consistent in the Xerox matter.

‘While this is an astonishing about-face on the part of Xerox’s management and PricewaterhouseCoopers, we are not aware of any facts that would change our previous conclusions. We continue to stand behind our audit work and our engagement teams.

PwC would not comment.

The scandal follows hot on the heels of the Enron and Worldcom fiascos; both audited by splintering firm Andersen.

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April 11, 2002

Can Xerox get out of its latest jam?

Analysts say SEC deal won’t help rebuild lost market share

By John W. Schoen, MSNBC

With its $10 million settlement of the government complaint that it cooked its books, Xerox management is hoping to convince its customers, investors and lenders that the worst is now behind the company. After decades of product stumbles, two years of management turmoil, and a near-miss with bankruptcy court, the company seems to have nine lives.

But Xerox now confronts the same hurdle it has failed to clear at key points in the past: Moving its aging copier technology into the digital age.

XEROX BECOMES the latest post-Enron company to disclose that it cooked its books by reporting phantom profits.

From 1997 through 2000, Xerox shifted some $3 billion in revenues and artificially boosted pre-tax earnings by about $1.5 billion, according to the Securities and Exchange Commission. Those “accounting actions” helped the company “disguise its true operating performance from investors,” according to the SEC.

To settle charges that it schemed to defraud investors, the company agreed to pay $10 million — the largest such penalty ever — without admitting or denying guilt.

“Xerox used its accounting to burnish and distort operating results rather than to describe them accurately,” said Stephen M. Cutler, the SEC’s Director of Enforcement.

“For Xerox, the accounting function was just another revenue source and profit opportunity. As a result, investors were misled and betrayed.”

The SEC also approved a 90-day delay of the company’s 10-K annual financial statement. Under the terms of the settlement, Xerox will again restate its results for the years 1997 through 2000 and correct 2001 results.

Xerox also agreed to hire an outside consultant to go over its accounting practices and review the results with the SEC.

While Xerox may have put the SEC complaint behind it, former company manager are not be out of the woods yet. According a report in Wednesday’s Wall Street Journal, the SEC may yet file civil charges against Paul Allaire, who retired in December after 10 years as Xerox chairman, and former Chief Financial Officer Barry Romeril.

The SEC is also reportedly targeting Michael Conway, a KPMG partner who co-headed Xerox auditing, according to the Journal. KPMG audited Xerox for decades but was fired six months ago.


The financial shenanigans cited by the SEC included, among other things, booking revenues from long-term service contracts when they were signed — instead of when the services were performed. That had the effect of inflating reported profits by prematurely booking future revenues.

The corrections aren’t small change. In the fourth quarters of both 1998 and 1999, the SEC says that so-called “accounting actions” generated some 37 percent of Xerox’s reported pre-tax profit. By 1998, nearly $3 of every $10 of Xerox’s annual reported pre-tax earnings came from “undisclosed accounting actions” — without which Xerox would have missed analysts profit forecasts, often by a wide margin, in almost every reporting period from 1997 through 1999, according to the SEC.

Despite the scope of the complaint, Xerox said Thursday’s settlement will lift a cloud that has been casting a big shadow on the company —- and its stock —- since the problem first came to light last year.

“With the SEC matters now behind us, we are better positioned to continue fortifying our business through operational improvements and future growth opportunities,” said Anne Mulcahy, Xerox’s chairman and chief executive officer, who took over the top job earlier this year.

Though the recent disclosures about Xerox’s creative accounting have hammered the company’s stock, it isn’t yet looking at the kind of quick financial endgame that rapidly submerged Enron as its customers jumped ship. Unlike Enron, Xerox has a large installed product base, a broad line of manufactured products and long-term service contracts.

But even with its profit-inflating “accounting actions,” Xerox’s revenues have been shrinking and its losses mounting. Last year, Xerox posted a net loss of $293 million on revenues of $16.5 billion. That compared with a reported loss in 2000 of $257 million on revenue of $18.7 billion.

Xerox has also been struggling to shore up its financial base, paring down a debt load that had had threatened to swamp the company. That overhaul includes a recent deal to sell off a big chunk of its finance business to General Electric. Xerox is also trying to renegotiate some $7 billion in bank loans that come due in October. The company now has about $4 billion in cash to help it stay afloat as it continues to try to become profitable again. But its debt still gets a “junk bond” credit rating —- with no immediate hope for improvement.

Xerox’s turnaround plan also includes deep job cuts and the sale or closure of unprofitable operations. In addition to getting out of the finance business, Xerox is shedding its manufacturing operations, selling off much of it to contract manufacturer Flextronics International. It has also scrapped money-losing product lines aimed at consumer and small businesses, including personal copiers and ink jet printers. It’s refocusing its efforts on the high end, with a new $500,000 model aimed at the commercial printing market.

The result is a smaller company: some 11,000 jobs have been cut since October 2000 and further cuts are expected.
Even if Xerox has stopped the bleeding, it’s not at all clear whether it can get back on its feet. The company’s biggest challenge remains one the company has been struggling with for decades: The shift toward digital imaging and away from the analog copier technology that Xerox pioneered over 50 years ago.

Xerox’s failed efforts to go digital are legendary —- dating back to the invention in the 1970s of key personal computing technology that Xerox watched companies like Apple and IBM commercialize. In the 1980s, the company tried to diversify away from copiers with a disastrous foray into financial services. It reversed course in the 1990s, positioning itself around the vision of a “paperless office” —- which failed to take hold when cheap inkjet printers from companies like Hewlett Packard sprouted on desktops.

The failed handoff by former CEO Allaire to IBM veteran Richard Thoman, who took over in 1999 and instituted an ill-fated reorganization of the sales force, resulted in turmoil that ended with Thoman’s ouster and Allaire’s return until earlier this year.

Despite the rough road Xerox has traveled, some Wall Street analysts insist the company has turned the corner under a new management team lead by Mulcahy. The consensus estimate has the company breaking back into the black in the current quarter with profits of 6 cents a share, according to Thomson Financial/First Call. For the full year, profits are expected to hit 32 cents a share.

Analysts who like the stock point out that the company still has a huge customer base and can continue to generate revenues servicing those copiers.

Still, the long-term health of the company depends on developing new sources of revenue —- from products that can win back share in a competitive market. On that score, the jury is still out —- especially at a time when corporate customers have cut their technology spending to the bone.

To generate those new product revenues, “you have to have demand there,” said Standard & Poor’s analyst Richard Stice. “At least over the near term, I just don’t see that happening”

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April 24, 2002


Xerox Corp. today delayed reporting details on first-quarter results, but said it was looking at a $64 million loss before the effects of changes in the way it records revenues from copier leases.

Xerox is paying a record $10 million civil penalty and revising financial statements back to 1997 to settle accounting fraud charges by the Securities and Exchange Commission.

Xerox is refiguring its earnings and paying the fine while neither admitting nor denying wrongdoing.

Xerox released a performance report instead of a traditional earnings report. It said the preliminary loss equaled about 9 cents per share.

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June 28, 2002

Xerox improperly booked revenue

Copier firm reverses $1.9 billion in sales

The Wall Street Journal

STAMFORD, Conn. — Xerox Corp. said it reversed about $1.9 billion of revenue that it recognized over previous years, a move that will reduce revenue 2% to $91 billion for the 1997-2001 period.

THE COMPANY said it reversed $6.4 billion of previously recorded equipment-sale revenue, which was offset by $5.1 billion of revenue that it recognized and reported during the same period as service, rental, document outsourcing and financing revenue. Also, Xerox reversed $600 million in lease revenue that it received before 1997, a company spokeswoman said.

Shares of Xerox slid 17%, or $1.39, to $6.61 in morning trading on the New York Stock Exchange.

The copier firm said it will file its 2001 annual report Friday to include these changes for the five-year period. The announcement comes after a new audit of the firm found that it improperly accelerated far more revenue during the past five years than the Securities and Exchange Commission had originally estimated in an April settlement with the company, according to people familiar with the matter. . . .

Originally, the SEC had estimated that the company improperly accelerated $3 billion in revenue for the four years from 1997 through 2000. But the latest audit, which also looked at 2001, found fresh accounting problems, according to people familiar with the matter. As a result, the total amount of improperly recorded revenue over that five-year period was expected to reach more than $6 billion.

Xerox also said Friday that its restatement includes a reduction of $368 million in pretax income due to what it called “the timing of the establishment and release of certain reserves … and the timing of recognition of interest income on tax refunds.”

In its April complaint, the SEC had said that Xerox “pumped up its earnings” by improperly setting aside various reserves, then gradually adding them back into earnings to make up for profit shortfalls.

Xerox said that in total, it cut pretax income by $1.4 billion over the 1997-2001 period. Shareholder equity was reduced by $1.3 billion as of the end of 2001.

“Xerox [Friday] closes a difficult chapter in the company’s history. With the filing of the 2001 10-K, we will have resolved the company’s accounting issues with the SEC and completed the restatement,” Anne Mulcahy, Xerox’s chairman and chief executive, said in a prepared statement.

The SEC’s April complaint had accused Xerox of having “misled and betrayed investors” with a wide-ranging scheme to manipulate its earnings and enrich top executives. Most of the charges revolved around Xerox practices that improperly accelerated revenue from long-term leases of its copiers and other office equipment.

At that time, the SEC had estimated that Xerox’s accounting tricks accounted for as much as 37% of pretax earnings during certain quarters.

The agency said the accounting scheme helped keep Xerox’s stock price artificially high in the late 1990s, with the result that executives could cash in more than $5 million in performance-based compensation and more than $30 million from stock sales.

Copyright © 2002 Dow Jones & Company, Inc., All Rights Reserved.

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July 1, 2002

Xerox restates billions in revenue: yet another case of accounting fraud

By Joseph Kay

In the latest scandal involving a prominent American corporation, Xerox revealed last week that over the past five years it has improperly classified over $6 billion in revenue, leading to an overstatement of earnings by nearly $2 billion.

The announcement of Xerox is not entirely new. The Securities and Exchange Commission (SEC) began an investigation that ended in April of this year. The SEC had charged the producer of copiers and related services with accounting manipulations. It was estimated at the time, however, that the amount involved was about half that which is now stated, or about $3 billion. A settlement was eventually reached that included a $10 million fine, as well as an agreement to conduct a further audit. It was this audit that produced the $6 billion figure.

According to Paul Berger, the SEC’s associate director of enforcement, Friday”s announcement “falls under the scope of our original investigation…. We found what we considered to be a pattern of pervasive fraud.”

There were two basic manipulations that formed the basis for the SEC investigation. The first was the so-called “cookie jar” method. This involved improperly storing revenue off the balance sheet and then releasing the stored funds at strategic times in order to boost lagging earnings for a particular quarter. This is a widely used manipulation. Earlier this year Microsoft settled an investigation by the SEC into similar practices at the software giant.

The second method—-and what accounted for the larger part of the fraudulent earnings—-was the acceleration of revenue from short-term equipment rentals, which were improperly classified as long-term leases. The difference was significant because according to the Generally Accepted Accounting Principles (GAAP)—-the standards by which a company”s books are supposed to be measured—-the entire value of a long-term lease can be included as revenue in the first year of the agreement. The value of a rental, on the other hand, is spread out over the duration of the contract.

The effect of the manipulation was that Xerox could count as earnings what was essentially future revenue. This boosted short-term profits and allowed the company to meet profit expectations in 1997, 1998 and 1999, though it had the effect of reducing earnings during the past two years. In 1998 Xerox reported a pretax income of $579 million, while it should have reported a loss of $13 million. On the other hand, the $137 million loss for 2001 will become a $365 million gain after the manipulation is reversed. The $1.9 billion total that will now be subtracted from revenue reported from 1997-2001 will be added to future reports.

Thus, unlike some of the other scandals that have emerged over the past several months, Xerox has not been accused of falsely creating unearned income. Rather it spread its income out in a fraudulent manner. To the same end, WorldCom improperly capitalized about $4 billion in ordinary expenses in order to allow the company to deduct the expense over a period of decades rather than writing it off all at once. Both these methods serve to boost short-term profits.

Why carry out these manipulations when the extra money earned in one year would have to be subtracted from future years? This was necessary because corporations are under enormous pressure from Wall Street investors to keep up short-term earnings. Otherwise, their share values will drop, which not only threatens companies heavily reliant on share values to finance debt, but also has financial consequences for top executives, whose astronomical incomes are bound up with stock options.

The SEC investigation noted that “compensation of Xerox senior management depended significantly on their ability to meet [earnings] targets.”

Because of the accounting manipulations, top Xerox executives were able to cash in on stock options valued at an estimated $35 million.

Xerox stock rose to a peak of $60 a share in mid-1999, when the company was carrying out the accounting fraud. It has since declined sharply and is now trading at about $7.

Confronted with declining revenue during the late 1990s that should have led to lower than expected earnings reports — thereby reflecting the true nature of the company’s deepening problems — Xerox decided to cook the books.

This was done quite methodically. Internal documents have recorded discussions among top officials at Xerox concerning ways to manipulate accounting to allow the company to meet Wall Street expectations. Executives apparently calculated the exact amount that would have to be altered in order to allow the company to just meet or slightly exceed “first call consensus” expectations on Wall Street, which are determined prior to a company’s release of earnings data.

In 1997, for example, expected earnings were at $1.99 a share, while reported earnings were $2.02. Actual earnings correcting for the accounting manipulations, were at $1.65. Using its earlier underestimate of $3 billion in improperly classified revenue, the SEC calculated these actual earnings. In 1998, expected and reported earnings were both at $2.33 while actual earnings were only $1.72 a share. In 1999, reported earnings beat expected earnings by one cent, while actual earnings fell short by almost 50 cents.

This is a striking example of a company fitting earnings to expectations in order to prevent a run on stock. It is, however, a fairly common practice. Many companies, like General Electric for example, always seem to come out just barely ahead of expectations. Indeed, recent studies have found the distribution of reported earnings of major companies around expectations was skewed to the positive side. That is, it is more likely for a company to beat than to fall short of expectations, suggesting that there are many companies that have been following the same accounting practices as Xerox.

Like the WorldCom fraud, Xerox’s manipulation should have been easy to detect if there was anyone interested in looking. As former SEC chief accountant Lynn Turner noted, “These numbers have gotten so large that it’s akin to auditors driving past Mt. Everest and saying they never saw it…. Corporate America has somehow gotten into the mindset that this is OK.”

Xerox’s auditor during the period in question was KPMG, one of the “big four” accounting firms that dominate the profession. KPMG was fired in October and replaced by PricewaterhouseCoopers.

KPMG was also part of the SEC investigation that began last year. The evidence suggests that the auditing firm knew what was going on and decided to allow it to continue. An internal document obtained by the SEC contained a statement by a KPMG official acknowledging that Xerox’s schemes constituted “half-baked revenue recognition.”

When the KPMG auditor in charge of the Xerox account began to raise some concerns about the company’s improper techniques, he was replaced with someone else.

Earlier this year, the SEC considered filing civil charges against top executives at both KPMG and Xerox. The accounting firm is currently facing lawsuits from shareholders charging the company with failing to audit Xerox properly.

KPMG is also under scrutiny for its role in approving the books of the drug store chain Rite Aid, which recently acknowledged that it inflated its income by more than $1 billion over a two-year period. It also approved the books of the collapsed Belgian software company Lernout & Hauspie Speech Products NV, which has admitted to fabricating 70 percent of sales at its largest unit.

The Xerox case has focused attention on the role of the SEC and its chairman, Harvey Pitt. Pitt, a former lawyer for the big accounting firms including KPMG, met with KPMG’s new chairman, Gene O’Kelly, in April. O’Kelly issued a statement declaring he told Pitt at this meeting that any SEC action against KPMG would be “unfounded” and “would pose serious disruption … in the capital markets.”

Pitt denied that the two discussed Xerox at all during the meeting. Such a discussion, if it took place, would be a serious violation of norms of independence. The SEC, having failed to raise any flags while the fraud was being carried out, appears complicit in the scandal.

Because of its protracted crisis, Xerox has been forced to sell off some of its assets. It managed to renegotiate its credit earlier this month, but at higher interest rates. If the company had failed to renegotiate its credit line, it may have been unable to meet its obligations, forcing it into bankruptcy. This almost happened once before, in late 2000.

In an attempt to cut back on costs, Xerox has laid off thousands of workers in the past two years and may well make further retrenchments in the future.

On the other hand, as Xerox’s troubles grew more severe, the company’s CEO Anne Mulchay received a pay package in 2001 that could be worth as much as $25 million….

* * *

July 5, 2002

Xerox filing shows $71.6 m to auditor

From The Hindu: http://www.thehindu.com/2002/07/05/stories/2002070502661600.htm

NEW YORK – The Xerox Corp.’s much publicised accounting problems cost the company more than a $10 million fine and a depressed share price.

According to the preliminary 2001 proxy that Xerox filed on Wednesday with the Securities and Exchange Commission, Xerox paid PricewaterhouseCoopers, the accounting company that replaced KPMG as its auditor, $71.6 million last year.

The fees covered auditing duties as well as consulting assignments. The practice of allowing the same firm to handle both types of assignments has emerged as an issue in the recent accounting corporate scandals, raising concerns about a conflict of interest.

A Xerox spokeswoman, Christa Carone, said that PricewaterhouseCoopers had served as a consultant before it was auditor and that the knowledge it had gleaned made it a shoo-in for the auditor’s role.

“They’d become familiarised with our business and operations,” Carone said, “and that made for an easier transition from KPMG.”

Specifically, Xerox paid PricewaterhouseCoopers $10.4 million for auditing current statements, $21.2 million for reauditing past statements, $19.6 million for helping Xerox install a new financial information system, and $20.4 million for forensic accounting —- helping Xerox investigate the accounting methods that the SEC was investigating.

Like KPMG, the firm endorsed Xerox’s position that its methods for accounting for equipment leases were in line with generally accepted accounting principles, a position that Xerox nonetheless abandoned last week, when it said it would restate $6.4 billion in revenues and profits stemming from 1997, and change its accounting methods.

In the proxy statement, Xerox also said that three directors, Martha R. Seger, George J. Mitchell and Thomas C. Theobald, were resigning. Theobald had led Xerox’s audit committee.

“My particular responsibilities with Xerox’s audit committee have related to a series of now completed projects,” Theobald wrote in his resignation letter. “A new audit committee head can move forward with a clean slate.”

The proxy also asked for authorisation to issue 700 million new shares, the clause that Carone said was the decisive factor on the proxy’s timing.

Xerox issued the proxy late Wednesday afternoon, when many offices had emptied early for the holiday weekend.

The company expected to be criticised for its timing, but Carone said it was unavoidable because the SEC expects to see a request for more shares 90 days before the vote. Xerox’s annual meeting is scheduled for September 9. The company said it would start mailing the proxies to shareholders on or about July 29.

© Copyright 2000 – 2002 The Hindu

* * *

September 24, 2002

Feds probe Xerox accounting errors

Treasurer, other executives could face civil charge

By James Bandler. The Wall Street Journal

Federal authorities have opened an inquiry into whether to file criminal charges related to the massive misstatement of earnings at Xerox Corp., deepening the scrutiny of events that led to a financial restatement by the copier giant earlier this year.

XEROX, WHICH IS dealing with a heavy debt load and pressure from rivals, has repeatedly asserted that it has placed the accounting scandal behind it. The early-stage criminal inquiry, however, as well as a Securities and Exchange Commission civil investigation that is focusing on both current and former company executives have the potential to keep the matter alive. The company has settled its case with the SEC, but the securities watchdog has informed additional individuals, including current Xerox Treasurer Greg Tayler, that they could face a civil charge in the case, according to people familiar with the inquiries.

People familiar with the criminal investigation say that Federal Bureau of Investigation agents, working with the U.S. Attorney’s Office in Bridgeport, Conn., recently questioned James Bingham, a former assistant treasurer at Xerox, who has asserted that he was fired for trying to rein in unethical accounting at the company.

Information provided by Mr. Bingham was crucial to the SEC’s civil case against Xerox, which the company settled earlier this year by paying a $10 million fine and restating its financial results dating back to 1997. Although Xerox neither admitted nor denied any wrongdoing in the case, the restatement showed it had misbooked $6.4 billion of equipment revenue, and overstated its pretax income by 36 percent, or $1.41 billion, over the five years through 2001.

It couldn’t immediately be learned which entities or individuals federal prosecutors were focusing on. Robert Appleton, an assistant U.S. attorney in Bridgeport, said he could offer “no confirmation or denial” of the existence of a Xerox probe.

In a statement Monday night, Xerox confirmed that it is being investigated and said it will fully cooperate with the U.S. Attorney’s office.

The SEC, Mr. Bingham, and a number of accounting experts and plaintiffs in a civil suit against Xerox say the company wrongly booked long-term copier-leasing contracts to take more of the revenue and profits than it should have during the early years of the agreements. In addition, the SEC faulted the company for failing to disclose one-time sales of receivables that boosted results, and for using a so-called cookie jar reserve that ostensibly was to be used for paying merger costs, but in fact was used to help meet earnings expectations.

From 1997 through 2000, the SEC alleged, senior Xerox management reaped over $5 million in performance based compensation and over $30 million in profits from the sale of stock.


Although the SEC has settled its case against Xerox, it has informed — via so-called Wells notices — Xerox’s former accountant, KPMG LLP, plus a number of former and current KPMG and Xerox employees that they could still face civil charges. The list of those receiving such notices, which give the targets a chance to rebut allegations against them, includes at least eight former and current individuals at the company and at KPMG, say people familiar with the matter. In addition to Mr. Tayler, the current Xerox treasurer, previously unidentified Wells recipients include Philip D. Fishbach, a former Xerox controller, and Daniel Marchibroda, a former assistant controller. The SEC’s case is separate from the criminal investigation, and there is no information that any of the Wells-notice recipients are targets of the federal inquiry. None of the men responded to requests for comment.

KPMG has said it did nothing wrong in its work for Xerox and was, in fact, fired for forcing Xerox to conduct an independent accounting examination that resulted in Xerox restating results. That restatement last year preceded the broader, SEC-prompted one this year. George Ledwith, a KPMG spokesman, said that as a “matter of policy the firm did not discuss client matters or investigations.”

SEC Chairman Harvey Pitt has taken a hard line against Xerox, saying in the wake of the settlement that the agency is “going after all the corporate officers” involved in the alleged fraud. The SEC also has said that it is considering trying to force former Xerox officials to return incentive-based compensation that they received while the wrongful accounting was boosting the company’s earnings and its stock price.

According to the SEC, in November 1999, former Xerox Chief Financial Officer Barry Romeril told senior Xerox management that when accounting actions were stripped away, Xerox had essentially “no growth” through the late 1990s. In 1998, for instance, the company had reported a revenue gain of 7 percent from the previous year.

As reported, Mr. Romeril and former CEOs G. Richard Thoman and Paul A. Allaire have also received Wells notices. They couldn’t be reached, and in the past haven’t responded to requests for comment.

Criminal fraud cases require a higher burden of proof than civil cases, and prosecutors would have to show beyond a reasonable doubt that any executives charged had intended to commit a crime. Most of the accounting maneuvers at the heart of the Xerox case were approved by KPMG, and any executives charged with fraud are likely to argue that they relied on the advice of their outside auditors.

Mr. Bingham has asserted that he was fired by Xerox in 2000 after he repeatedly questioned the company’s accounting practices. In his depositions in the SEC case, Mr. Bingham testified that the company’s culture in the late 1990s was one in which accounting trickery was routinely used to conceal deteriorating underlying results.

Xerox has tried to portray Mr. Bingham as a disgruntled former employee and until last spring tried to portray the issues as either erroneous or minor accounting matters. In fact, Mr. Bingham’s estimates for the scope of the alleged fraud have proved conservative. In 1998, for instance, Xerox said in its restatement that it actually recorded a loss of $13 million instead of the $579 million pretax profit it had earlier reported.

The scandal might never have come to light but for a series of e-mail messages sent by Mr. Bingham in the summer of 2000. Before a trip to Brazil he was scheduled to take with Xerox’s new president, Anne Mulcahy, and not long after the SEC began its probe into Xerox’s accounting in its Mexico unit, Mr. Bingham fired off an e-mail to his boss, then-treasurer Eunice Filter. It warned that accounting problems extended beyond Mexico.

Ms. Filter told him not to distribute it, asking whether he “wanted people to go to jail,” according to a wrongful-termination suit brought by Mr. Bingham.

Mr. Bingham sent the e-mail on to Ms. Mulcahy — Xerox’s current chairwoman and CEO — and Mr. Romeril, the CFO, but Ms. Filter’s assistant ordered him to recall and “destroy” it, according to an internal message. Xerox, which has called the directive to destroy the message an “unfortunate selection of words,” has said Ms. Filter wanted a chance to investigate the allegations before forwarding them to superiors.

Ms. Filter called Mr. Bingham’s assertion “inaccurate,” but she declined to comment further.

Copyright © 2002 Dow Jones & Company, Inc., All Rights Reserved.

* * *

May 23, 2003

PricewaterhouseCoopers Agrees to Pay $1M

Associated Press

PricewaterhouseCoopers, the nation’s largest accounting firm, has agreed to pay $1 million to settle federal regulators’ allegations that it engaged in improper professional conduct in its audit work — the second time in less than a year it has been cited for that alleged infraction.

PricewaterhouseCoopers neither admitted nor denied wrongdoing in the settlement that the Securities and Exchange Commission announced Thursday. As it did last July in a similar accord with the SEC, in which it paid $5 million, the firm also agreed to be censured and to make changes in how it operates. That case involved audits of 16 companies from 1996 to 2001.

At issue in the new case is PricewaterhouseCoopers’ 1997 audit of SmarTalk TeleServices Inc., a provider of pre-paid phone cards and wireless services which the SEC says is now bankrupt. Because the auditing firm failed to adequately account for a $25 million reserve fund, SmarTalk filed with the SEC an annual report “which contained materially false and misleading financial statements,” the agency said.

Spokesmen for New York-based PricewaterhouseCoopers didn’t immediately return a telephone call seeking comment.

Nearly a year after now-fallen Arthur Andersen LLC was convicted on obstruction of justice charges for destroying reams of Enron audit documents, alleged violations by other big firms in the scandal-tainted accounting industry continue to be cited.

In January the SEC sued another Big Four accounting firm, KPMG LLP, alleging that it fraudulently allowed Xerox Corp. to manipulate accounting practices to fill a $3 billion gap, thereby satisfying investors about its financial performance. The agency is seeking injunctions, repayment of auditing fees and unspecified civil penalties. KPMG has defended its 1997-2000 audits of Xerox’s financial statements and has called the SEC’s accusations unfounded.

Antonia Chion, an associate enforcement director at the SEC, called the latest PricewaterhouseCoopers action an example of the agency’s “intention to adopt a new enforcement model – one that holds an accounting firm responsible for the actions of its partners.”

“It also highlights the firm’s failure to maintain the integrity of its audit working papers,” Chion said in a statement.

Under the settlement, PricewaterhouseCoopers agreed to establish new policies for preserving documents and to hire an independent consultant to review its computer software system.

The SEC also alleged that Philip Hirsch, who had been the lead audit partner for SmarTalk, engaged in improper professional conduct. Hirsch, who neither admitted nor denied the allegations, consented in a settlement to be barred from auditing publicly traded companies for at least a year, with the right to apply for reinstatement after that.

Hirsch’s attorney, Geoffrey Aronow, declined comment.

In the July 2002 case, the SEC alleged that PricewaterhouseCoopers broke rules meant to ensure that auditors remain independent from the companies whose books they oversee.

As a result of the rule violations, the SEC found that 16 clients of the accounting firm submitted financial statements from 1996 to 2001 that didn’t comply with federal securities laws. The violations were said to be related to PricewaterhouseCooper’s approval of clients’ accounting treatment of costs that included the accounting firm’s own consulting fees.

Also, the SEC said that PricewaterhouseCoopers entered into improper fee arrangements with the audit clients, in which the companies hired PricewaterhouseCoopers’ investment bankers to provide financial advice for a fee that depended on the success of the transaction the company was pursuing.

The new board created by Congress last year to oversee the accounting industry, which has the power to discipline accountants, recently decided it also will establish new standards for auditors governing quality control, professional ethics and their independence from audit clients. The SEC on Wednesday formally approved the appointment of William J. McDonough, president and chief executive of the Federal Reserve Bank of New York, as chairman of the oversight board.

— Marcy Gordon, AP Business Writer

© Copyright 2003 Associated Press.

* * *

June 6, 2003


The Courier-Journal

The Securities and Exchange Commission yesterday charged former Xerox chief Paul Allaire and five other ex-Xerox Corp. executives with civil securities fraud over accounting methods that the regulatory agency said overstated earnings for the huge copier maker.

The six men settled the civil suit with a $22 million payment that includes penalties and forfeiting profits, the SEC announced.

They did not admit to or deny the allegations.

Others charged were G. Richard Thoman, former president and chief operating officer; Barry D. Romeril, former chief financial officer; Philip D. Fishbach, former controller; Daniel S. Marchibroda, former assistant controller; and Gregory B. Tayler, former director of accounting policy.

Xerox shares closed down 2 cents at $11.25.


And, if you’re a lowly sparrow still “perishing for lack of knowledge”…






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Birds on the Power Lines

Broken Trust

Buzzards of Paradise

Dirty Money, Dirty Politics & Bishop Estate

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P-s-s-t, wanna buy a good audit?

RICO in Paradise

The Indonesian Connection

The Marsh Birds

The Morgan, Lewis & Bockius Report

The Nests of Osama bin Laden

Prudential: A Nest on Shaky Ground

The Secret Nests

The Sinking of the Ehime Maru

The Strange Saga of BCCI

Vultures of the Sandwich Isles

What Price Waterhouse?

William Simon Says…

Yakuza Doodle Dandies


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Last update June 9, 2003, by The Catbird.