Xerox 2006 Annual Report Download - page 98

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in millions, except per-share data and unless otherwise indicated)
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 materially
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 restatement 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. On July 13, 2005,
the court denied the motion. On December 9, 2005, the
defendants moved to dismiss claims based on issues
uniquely related to plaintiffs. That motion has been fully
briefed, but has not been argued before the court. The
court has not issued a ruling. The parties are engaged in
discovery. 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 consolidated with the other actions. The
purported class includes all persons who invested or
maintained investments in the Xerox Stock Fund in the
Xerox 401(k) Plans (either salaried or union) during the
proposed class period, May 12, 1997 through
November 15, 2002, and allegedly exceeds 50,000
persons. The defendants include Xerox Corporation and
the following individuals or groups of individuals during
the proposed class period: the Plan Administrator, the
Board of Directors, the Fiduciary Investment Review
Committee, the Joint Administrative Board, the Finance
Committee of the Board of Directors, and the Treasurer.
The complaint claims that all the foregoing defendants
were fiduciaries of the Plan under ERISA and, as such,
were obligated to protect the Plan’s assets and act in the
interest of Plan participants. The complaint alleges that
the defendants failed to do so and thereby breached their
fiduciary duties. Specifically, plaintiffs claim that the
defendants failed to provide accurate and complete
material information to participants concerning Xerox
stock, including accounting practices which allegedly
artificially inflated the value of the stock, and misled
participants regarding the soundness of the stock and the
prudence of investing their retirement assets in Xerox
stock. Plaintiffs also claim that defendants failed to invest
Plan assets prudently, to monitor the other fiduciaries and
to disregard Plan directives they knew or should have
known were imprudent, and failed to avoid conflicts of
interest. The complaint does not specify the amount of
damages sought. However, it asks that the losses to the
Plan be restored, which it describes as “millions of
dollars.” It also seeks other legal and equitable relief, as
appropriate, to remedy the alleged breaches of fiduciary
duty, as well as interest, costs and attorneys’ fees. We
filed a motion to dismiss the complaint. The plaintiffs
subsequently filed a motion for class certification and a
motion to commence discovery. Defendants have
opposed both motions, contending that both are
premature before there is a decision on their motion to
dismiss. In the fall of 2004, the Court requested an
updated briefing on our motion to dismiss and update
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