Acccounting and Contracts, Electronic Data Systems pays fine for fraud

New York, NY: (Sep-25-07) The US Securities and Exchange Commission brought charges against Electronic Data Systems (EDS), alleging that an investigation showed accounting irregularities that occurred from 2001 to 2003. The suit claimed that EDS failed to fully disclose the costs of some derivatives contracts, used faulty assumptions to estimate revenue and expenses for large contracts, and didn't adequately disclose an extraordinary transaction with a major customer that boosted EDS's reported cash flow by $200 million in 2000. Sources stated that EDS began using the derivatives contracts in 2001 as a strategy for reducing the cost of employee stock options if the price of EDS shares were to rise. EDS didn't immediately disclose the investments, which soured and cost the company more than $225 million to close out in September 2002. EDS also didn't disclose the nature of a deal in which an unidentified customer paid $200 million upfront in exchange for a $21 million discount on future services. The arrangement let EDS report higher cash flow in the second quarter of 2002.

The SEC alleged that EDS also lowballed estimates of work it would have to perform under a multi-billion-dollar contract with the US Navy. And the commission said an employee of an EDS subsidiary paid bribes totaling at least $720,000 to officials of two Indian state-owned companies that threatened to cancel contracts. In a settlement reached, the company agreed to a $490,902 payout to resolve litigation. [CNN NEWS: EDS ACCOUNTING]

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Published on Sep-26-07