The Securities and Exchange Commission filed civil charges Wednesday against several current and former Diebold Inc. executives.
In addition, the regulator filed paperwork in federal court finalizing a $25 million settlement the automated teller machine maker reached with SEC staff two years ago to resolve three years of legal issues.
The SEC alleges that former chief financial officer Gregory Geswein, former controller and finance chief Kevin Krakora, and former director of corporate accounting Sandra Miller manipulated the company's earnings to meet forecasts over a period of several years.
In dispute was Diebold's revenue-recognition accounting procedure known as "bill and hold," in which the company recorded revenue before shipping merchandise to buyers.
The SEC alleges that Diebold's financial management received "flash reports," sometimes daily, comparing the company's actual earnings to analysts' earnings forecasts. 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 the lists were fraudulent accounting transactions designed to improperly recognize revenue or otherwise inflate Diebold's financial performance, the SEC said in a press release.
In 2009 the SEC served Wells notices to executives who handled Diebold's finances during a period of several years; the company eventually had to restate its quarterly and annual financial reports beginning with 2003.
"Diebold's financial executives borrowed from many different chapters of the deceptive accounting playbook to fraudulently boost the company's bottom line," Robert Khuzami, the director of the SEC's division of enforcement, said in the release. "When executives disregard their professional obligations to investors, both they and their companies face significant legal consequences."
Attorneys representing Geswein and Miller dispute the SEC's charges and said they will fight the allegations in court. Krakora's attorney, John Carney of Baker Hostetler LLP in Washington, did not return calls Thursday.
Only Krakora remains employed at Diebold, but in a nonfinancial reporting role, according to company spokesman Mike Jacobsen.
Though he was not charged, former chief executive Walden O'Dell agreed to pay back about $470,000 in cash, plus stock and options; the government recaptured his compensation under provisions of the 2002 Sarbanes-Oxley law, according to the Associated Press. His attorney, Joshua R. Hochberg of McKenna Long & Aldridge LLP in Washington, did not return calls.
In an interview in May 2009, Jacobsen said Diebold agreed to make the payment before the SEC filed formal charges against.
Diebold neither admits nor denies civil securities fraud charges. With the settlement, it has consented to a judgment requiring the $25 million civil-penalty payment and an injunction against committing or causing certain specified securities law violations, according to the company, which recorded the charge to its 2009 first-quarter earnings and expects to pay the penalty to the SEC soon.
The SEC launched an informal inquiry into the way Diebold recognized revenue in May 2006. The informal inquiry became a formal, nonpublic investigation in August of that year.
