Xerox 2004 Annual Report Download - page 75

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Company, KPMG, and the individual defendants vio-
lated Section 10(b) of the 1934 Act and SEC Rule 10b-5
thereunder; the other alleging that the individual
defendants are also allegedly liable as “controlling
persons” of the Company pursuant to Section 20(a) of
the 1934 Act. Plaintiffs claim that the defendants par-
ticipated in a fraudulent scheme that operated as a
fraud and deceit on purchasers of the Company’s com-
mon stock and bonds by disseminating materially
false and misleading statements and/or concealing
material adverse facts relating to various of the
Company’s accounting and reporting practices and
financial condition. The plaintiffs further allege that
this scheme deceived the investing public regarding
the true state of the Company’s financial condition and
caused the plaintiffs and other members of the alleged
Class to purchase the Company’s common stock and
bonds at artificially inflated prices, and prompted a
SEC investigation that led to the April 11, 2002 settle-
ment which, among other things, required the
Company to pay a $10 penalty and restate its
financials for the years 1997-2000 (including restate-
ment of financials previously corrected in an earlier
restatement which plaintiffs contend was improper).
The third consolidated amended complaint seeks
unspecified compensatory damages in favor of the
plaintiffs and the other Class members against all
defendants, jointly and severally, including interest
thereon, together with reasonable costs and expenses,
including counsel fees and expert fees. On December
2, 2002, the Companyand the individual defendants
filed a motion to dismiss the complaint. That motion
has been fully briefed, but has not been argued before
the court. The court has not issued a ruling. The indi-
vidual defendants and wedenyany wrongdoing and
are vigorously defending the action. Based on the
stage of the litigation, it is not possible to estimate the
amount of loss or range of possible loss that might
result from an adverse judgment or a settlement of
this matter.
Florida State Board of Administration, et al. v. Xerox
Corporation, et al.: Asecurities law action brought by
four institutional investors, namely the Florida State
Board of Administration, the Teachers’ Retirement
System of Louisiana, Franklin Mutual Advisers and
PPM America, Inc., is pending in the United States
District Court for the District of Connecticut against
the Company, Paul Allaire, G. Richard Thoman, Barry
Romeril, Anne Mulcahy, Philip Fishbach, Gregory
Tayler and KPMG. The plaintiffs bring this action indi-
vidually on their own behalves. In an amended com-
plaint filed on October 3, 2002, one or more of the
plaintiffs allege that each of the Company, the individ-
ual defendants and KPMGviolated Sections 10(b) and
18 of the 1934 Act, SECRule 10b-5 thereunder, the
Florida Securities Investors Protection Act, Fl. Stat. ss.
517.301, and the Louisiana Securities Act, R.S.
51:712(A). The plaintiffs further claim that the individ-
ual defendants are each liable as “controlling persons”
of the Company pursuant to Section 20 of the 1934 Act
and that each of the defendants is liable for common
law fraud and negligent misrepresentation. The
complaint generally alleges that the defendants
participated in a scheme and course of conduct that
deceived the investing public by disseminating materi-
ally false and misleading statements and/or concealing
material adverse facts relating to the Company’s
financial condition and accounting and reporting
practices. The plaintiffs contend that in relying on
false and misleading statements allegedly made by the
defendants, at various times from 1997 through 2000
they bought shares of the Company’s common stock
at artificially inflated prices. As a result, they allegedly
suffered aggregated cash losses in excess of $200. The
plaintiffs further contend that the alleged fraudulent
scheme prompted a SEC investigation that led to the
April 11, 2002 settlement which, among other things,
required the Company to pay a $10 penalty and restate
its financials for the years 1997-2000 including restate-
ment of financials previously corrected in an earlier
restatement which plaintiffs contend was false and
misleading. The plaintiffs seek, among other things,
unspecified compensatory damages against the
Company, the individual defendants and KPMG,
jointly and severally, including prejudgment interest
thereon, together with the costs and disbursements
of the action, including their actual attorneys’ and
experts’ fees. On December 2, 2002, the Company and
the individual defendants filed a motion to dismiss all
claims in the complaint that are in common with the
claims in the Carlson action. That motion has been
fully briefed, but has not been argued before the court.
The court has not issued a ruling. The individual
defendants and we deny any wrongdoing and are
vigorously defending the action. Based on the stage of
the litigation, it is not possible to estimate the amount
of loss or range of possible loss that might result from
an adverse judgment or a settlement of this matter.
In Re Xerox Corp. ERISA Litigation: On July 1, 2002, a
class action complaint captioned Patti v. Xerox Corp. et
al. was filed in the United States District Court for the
District of Connecticut (Hartford) alleging violations of
the ERISA. Three additional class actions (Hopkins,
Uebele and Saba) were subsequently filed in the same
court making substantially similar claims. On October
16, 2002, the four actions were consolidated as In Re
Xerox Corporation ERISA Litigation. On November 15,
2002, a consolidated amended complaint was filed. A
fifth class action (Wright) was filed in the District of
Columbia. It has been transferred to Connecticut and