Shareholders Sue Xerox over Mexican Operations

Shareholders filed a class-action lawsuit last week against Xerox, KPMG LLP and individual company officials in the U.S. District Court for the District of Connecticut, alleging that Xerox misinformed its shareholders with regards to its México operations, according to U.S. government documents filed Wednesday.

Shareholders allege that Xerox, KPMG and the officials participated in a "fraudulent scheme" by releasing misleading information and concealing adverse facts related to the company's Mexican operations, according to a filing made by Xerox with the U.S. Securities and Exchange Commission (SEC) Wednesday. Shareholders complain in the suit that, because they were unaware of the company's real financial situation, they purchased shares of common stock at artificially inflated prices.

Xerox denies any wrongdoing. "We feel strongly that Xerox has behaved in an appropriate manner," Bill McKee, a spokesman for Xerox, said. "We intend to vigorously defend the action."

The plaintiffs seek unspecified compensatory damages, along with counsel fees, expert fees and other expenses, the filing said.

As of Wednesday, Xerox had not been officially served with the lawsuit, according to McKee.

This is the second shareholder action against Xerox with regards to its México operations. Another suit was filed on July 5 in the Supreme Court of the State of New York, County of New York, alleging breach of fiduciary duties related to the Mexican operation's accounts receivable.

According to another SEC filing, this one from July 14, the shareholders claim that Xerox, KPMG and the individual officers allowed wrongful business practices to occur, did not supervise or instruct its employees and managers properly and took no steps to institute legal action against those that had conducted themselves inappropriately.

In its second-quarter filing with the SEC, Xerox recorded a pre-tax provision of US$115 million related to its "previously announced issues" in México, which included uncollectible long-term receivables, liabilities for amounts due to concessionaires and contracts that did not fully meet requirements to be recorded as sales-type leases.

Xerox responded to these issues by firing several senior managers and appointing a new general manager with a financial background, according to the filing. Xerox's Audit Committee of its Board of Directors also launched an investigation into the Mexican operation.

Meanwhile, in June the SEC began investigating the company's México operations and subpoenaed documents. Xerox maintained that it would fully cooperate with the SEC.

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