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Diebold Inc. may have resolved three years of legal troubles with the U.S. Securities and Exchange Commission and the U.S. Attorney's Office for the Northern District of Ohio.
The North Canton, Ohio-based ATM maker disclosed Monday in an SEC filing that it agreed to pay a $25 million fine in the hope of avoiding formal charges against the company.
The SEC launched an informal inquiry into the way Diebold recognized revenue in May 2006. The informal inquiry became a formal, nonpublic investigation three months later. The SEC investigated the company's revenue-recognition accounting procedure known as "bill and hold."
Under "bill and hold," the company recorded revenue before it shipped merchandise to buyers. Diebold now recognizes revenue when the customer receives the merchandise.
The SEC also investigated other accounting methods, including "prepaid," in which a customer pays Diebold in advance for the merchandise, and accrual, which involves accepting payments on an agreed to basis. Paying the $25 million means that the SEC would not file formal charges against Diebold if the SEC accepts its staff's recommendations to accept the payment, Mike Jacobsen, Diebold spokesperson, tells ATM&Debit News. Diebold recorded the $25 million payment in Tuesday's first-quarter financial statement.
"This is a good thing. The company settled before it received a Wells notice," says Luria. "If Diebold had not settled, the investigation would have dragged out for years. Now the company can go back to managing its business of making and selling ATMs," he says.
A Wells notice means the SEC plans to take civil legal action against the recipient.
The U.S. Attorney's Office for the Northern District of Ohio has agreed not to press charges against Diebold stemming from the SEC investigation, the SEC filing says. According to the agreement, Diebold would neither admit nor deny civil securities fraud charges.
The company also would agree to an injunction against committing or causing any future violations of certain specified provisions of federal securities laws, Diebold says.
The possible resolution of this dispute has nothing to do with the SEC serving Wells notices on current and former Diebold employees (ADN, 4/2). "Resolution of this agreement only applies to the company, not the individuals," Jacobsen says.
The SEC sent Wells notices to executives who handled Diebold finances during a period of several years, which led to the company restating its financials. It served one of the the notices to Kevin Krakora.
Diebold forced Krakora to step down as chief financial officer last month, but he remains with the company in an undefined role, Jacobsen says.
Gregory T. Geswein, Krakora's predecessor, has left the company, Jacobsen says.
Krakora was Diebold's controller when the company was using "bill and hold," prepaid and accrual accounting procedures, Luria says.
When Krakora replaced Geswein, Krakora continued the practices, but he did approach the SEC about how to remedy the problem.
When the SEC launched it informal inquiry, Diebold delayed release of its second quarter earnings report in July 2007. Diebold also began working with the SEC's Office of the Chief Accountant, and the U.S. Justice Department also announced an investigation into the company. Diebold restated its annual and quarterly financial statements beginning with 2003. The company began releasing up-to-date financial statements last September. ATM
