In a filing with the Securities and Exchange Commission, Xerox (NYSE:XRX) announced today it was under investigation by the SEC as a result of the accounting practices at Affiliated Computer Services (ACS), which Xerox acquired in September 2009 for $6.4 billion. The transaction was completed in February 2010.
The investigation focuses on whether the revenue of certain transactions should have been accounted for on a net rather than a gross basis. Gross revenue only factors in the cost of the goods sold, whereas net revenue deducts taxes and all other expenses from the gross revenue.
Xerox said the differences were not material and the difference did not affect its aggregate cash flow. The company said "the SEC staff has advised that will not recommend charges against Xerox."
But Xerox did state that Lynn Blodgett -- the executive vice president of Xerox and the president of Xerox Services -- as well as one current and one former employee had received a "Wells notice" from the SEC.
While a Wells notice is not a formal allegation or a finding of wrongdoing, it does indicate the SEC is considering bringing "civil enforcement actions against these three individuals," Xerox said. Each individual will have the ability to present his or her case before the SEC before an action is brought, which they intend to do, according to Xerox.
Blodgett was the former chief executive of ACS, a position that he had held since November 2006.
Fool contributor Patrick Morris has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.