An insurance carrier, which provides directors & owners insurance to Xerox Corp., has refused to reimburse the company for the $19.4 million in federal fines levied against six former executives involved in last year’s accounting scandal.
The insurer, a division of American International Group Inc., is asking a state court in New York City to declare that Xerox obtained its policies under false pretenses. AIG contends that Xerox "misrepresented the company’s financial condition and outlook," the Rochester, N.Y. Democrat and Chronicle reported Tuesday.
"We are quite disappointed that AIG would take such an aggressive action against a policyholder," Xerox spokeswoman Christa Carone told the newspaper. "We believe strongly that the case has no merit and that AIG is trying to avoid honoring its contractual commitments." AIG had no comment on the pending litigation.
The dispute stems from the 2002 settlement of a Securities and Exchange Commission investigation into the company’s accounting practices. Xerox agreed to pay a $10 million fine and restate several years of financial statements. Also fined were former Chairman Paul Allaire, former Chief Executive G. Richard Thoman and former Chief Financial Officer Barry Romeril.
Xerox said its bylaws required it to pay nearly all the executives’ fines — some $19.4 million of $22.5 million — which the company expected would be reimbursed by the AIG policies protecting Xerox directors and officers.