Xerox Shareholder Derivative Lawsuit

This shareholder derivative lawsuit was filed for the benefit of Xerox Corporation against certain members of the company's Board of Directors who are accused of breaching their fiduciary duties to shareholders by failing to provide appropriate oversight and internal controls relating specifically to Xerox's acquisition of Affiliated Computer Services, Inc. and the resulting SEC invcestigation surrounding some of that firm's accounting practices.

Xerox Corporation and its subsidiaries are global leaders in business process and document management solutions with over 140,000 employees serving clients in 160 countries. In February of 2010, Xerox acquired Affiliated Computer Services, Inc. ("ACS") for $6.4 billion. On October 8, 2013, defendant Directors caused the Company to file a Form 8-K with the Securities and Exchange Commission (SEC) in which it was disclosed that the regulatory body had been conducting an investigation of certain accounting practices at ACS. The 8-K disclosed that the SEC had been focusing on revenue associated with certain ACS equipment resale transactions in the period prior to its acquisition by Xerox and how it should have been characterized. 

On August 28, 2014, the SEC issued notification of its intitiation of cease-and-desist proceedings against Xerox Executive Vice President Lynn Blodgett and former ACS CFO Kevin Keyser regarding the practice of re-directing orders through ACS, despite the fact that the company had no involvement with those sales and should have shown none of the resulting $125 million on its books. Both executives ultimately submitted an Offer of Settlement to the SEC, which the body accepted. The complaint argues that the accounting impropriety and misreported revenues in ACS financial reports overstated the Company's value and caused Xerox to pay an inflated price during the acquisition process.

The shareholder derivative complaint alleges that the Board violated the reporting, recordkeeping and internal controls provisions of the Securities Exchange Act, as evidenced by its filing of improper and misleading Forms 8-K, 10-Q and 10-K. These actions, according to the plaintiff, constitute breaches of the Directors' fiduciary duties characterized by unjust enrichment, abuse of control and gross mismanagement.

The complaint seeks a number of remedies, including:

  • Payment of the full amount of damages sustained by the Company due to the multiple breaches outlined,
  • An order directing the Company to take actions to reform and improve corporate governance and internal controls to prevent recurrence of the breaches,
  • An award of restitution from the defendants as well as complete disgorgement of profits, benefits and other compensation obtained by them as a result of their positions, and
  • An award of all fees and costs associated with bringing the lawsuit

A shareholder derivative lawsuit is one that is brought by a corporation's shareholder when a corporation in fact has a valid cause of action against a third-party (often a company insider or officer), but declines to pursue it. Such lawsuits are an unusual twist on conventional corporate law principles, under which management is typically charged with bringing legal action on behalf of the corporate entity. When management does not proceed in such a manner, a shareholder may be able to assume that role on behalf of the company and prosecute the litigation, provided that certain procedural hurdles are cleared. Should a shareholder prevail in type of suit, the resulting proceeds are paid to the corporation itself, not the individual who initiated the action.

 

Article Type: Lawsuit
Topic: Investments

Most Recent Case Event

Xerox Shareholder Derivative Lawsuit Complaint

September 22, 2015

The complaint for this shareholder derivative lawsuit was filed for the benefit of Xerox Corporation against certain members of the company's Board of Directors who are accused of breaching their fiduciary duties by failing to provide appropriate oversight and internal controls relating to Xerox's acquisition of Affiliated Computer Services, Inc. and the resulting SEC invcestigation into that firm's accounting practices.

xerox_shareholder_derivative_lawsuit.pdf

Case Event History

Xerox Shareholder Derivative Lawsuit Complaint

September 22, 2015

The complaint for this shareholder derivative lawsuit was filed for the benefit of Xerox Corporation against certain members of the company's Board of Directors who are accused of breaching their fiduciary duties by failing to provide appropriate oversight and internal controls relating to Xerox's acquisition of Affiliated Computer Services, Inc. and the resulting SEC invcestigation into that firm's accounting practices.

xerox_shareholder_derivative_lawsuit.pdf
Tags: Corporate Governance, Inadequate internal system/oversight, SEC Investigations