Six former executives of the Xerox Corporation have been charged with securities fraud and have agreed to pay $22 million in penalties as a result of their participation in accounting scandals at the company.

The SEC Enforcement Action was filed last week against the six former executives, which included its former chief executive officers, Paul A. Allaire and G. Richard Thoman, and its former chief financial officer, Barry D. Romeril.

The SEC's complaint alleges that the executives engaged in a fraudulent scheme that lasted from 1997 to 2000 that misled investors about Xerox's earnings to polish its reputation on Wall Street and to boost the company's stock price. The scheme involved the use of accounting devices that were not disclosed to investors, many of which violated generally accepted accounting principles (GAAP). The complaint alleges that the defendants' fraudulent conduct was responsible for accelerating the recognition of equipment revenues by approximately $3 billion and increasing pre-tax earnings by approximately $1.4 billion in Xerox's 1997-2000 financial results.

"A public company's stock price should reflect economic reality, not a distortion of that reality," said Stephen M. Cutler, the SEC's Director of Enforcement. "As alleged in the complaint, Xerox's senior management substituted accounting devices for the company's true operational performance. The investing public pays an enormous price for such fraudulent conduct."

But the impact on the executives will not be quite as painful as the numbers might suggest. As part of its officer indemnification policy, Xerox will reimburse its ex-employees for all but $3 million of the penalties. In response to this policy, SEC Chairman William Donaldson said, "I'm concerned about companies that, under permissive state laws, indemnify their officers and directors against disgorgement and penalties ordered in law-enforcement actions, including those brought by the commission.

"In my mind, this just isn't good, sound public policy," he said. "This is an area in which we may need to consider ways to bring about reform."