Diebold Inc. said Wednesday that the Securities and Exchange Commission has sent notices of possible civil action to some of its current and former employees, prompting one of the recipients, Kevin Krakora, to step down as chief financial officer.
The so-called Wells notices were sent to people who handled Diebold's finances during a period of several years for which the automated teller machine manufacturer has already restated its earnings. Wells notices are sent after an investigation but before an action is taken against an individual or company, giving recipients a chance to respond.
Diebold said in 2007 that it would change the way it recognizes revenue in response to an SEC investigation into its use of bill-and-hold accounting; under this accounting the company recognized revenue before shipping its products to customers.
Krakora, who remains with Diebold in a nonfinancial reporting role, became the North Canton, Ohio, company's CFO in August 2005 after Gregory T. Geswein resigned to take the same post at Reynolds and Reynolds Co., which provides technology to automotive dealerships. Geswein also received a Wells notice.
Diebold itself has not received a Wells notice, but spokesman Michael Jacobsen said Wednesday that it has approached the SEC to discuss its options in case it does.
"We're continuing to cooperate with the SEC in connection with the previously disclosed investigation," Jacobsen said. "As part of the process, we've had preliminary discussions with the SEC concerning resolution of the matter, including possibly entering into a settlement agreement, but it's still possible that the SEC will issue a Wells notice to the company."
In addition to Krakora and Geswein, the SEC has sent notices to other people who "had responsibility in the finance organization at the time, during the period in which those financials had to be restated," Jacobsen said, though he would not name the other individuals. He said Krakora and Diebold executives were not available for interviews Wednesday.
Leslie A. Pierce, a Diebold vice president and corporate controller, was named interim CFO.
The SEC investigation into Diebold's accounting began in 2006. Diebold had used the practice for more than two decades; 11% of its 2006 revenue was classified as bill and hold.
Diebold announced in October 2007 that it was changing its accounting methods and would record revenue when products were delivered; it also began to delay its earnings reporting at that time. Last year it caught up with its filings and restated earnings back to 2003.
Gil B. Luria, an analyst at Wedbush Morgan Securities, said Wednesday that the Wells notices are "a fairly serious step" for the SEC to take against a company or individuals.
Because Diebold completed its restatements last year, Luria said he had not expected any further action from the regulators. "You never know with the SEC," he said. "The SEC never tells you when it's done."
If the SEC only pursues the individuals it has notified, Diebold may not need to do more than it has already done to satisfy the agency, Luria said, though he said that this is unlikely.
If the SEC plans to pursue action against Diebold, and if Diebold cannot reach a settlement with the SEC, it would likely have to pay a penalty, he said. If it reaches a settlement, there would likely also be some sort of hefty payment.
"I don't think it would be enough to materially change the value of the company, but it could be a significant sum," he said. "It could be millions of dollars, but that wouldn't change the value of the company or its financials."
