SEC pursues fraud charges against 3 former Diebold executives, settles with company

SEC reaches $25M fraud settlement with Diebold

WASHINGTON — The Securities and Exchange Commission is pursuing fraud charges against three former executives of ATM maker Diebold Inc. after reaching a $25 million settlement with the company on Wednesday.

The SEC filed civil charges against former Diebold executives Gregory Geswein, Kevin Krakora and Sandra Miller, alleging they manipulated the company’s books to meet earnings forecasts from 2002 through 2007. Geswein was a chief financial officer, Krakora was a controller and finance chief, and Miller was director of corporate accounting.

Through their attorneys, Geswein, Krakora and Miller disputed the SEC’s charges.

Diebold’s former chief executive, Walden O’Dell, agreed to pay back about $470,000 in cash, plus stock and options. He was not charged with fraud or other violations of securities laws, but the government was allowed to recapture his compensation under the so-called “clawback” provision of the 2002 Sarbanes-Oxley anti-fraud law. The “clawback” calls for executives to repay compensation they received while their companies misled shareholders, even when they aren’t personally accused of participating in the violations.

“We are pleased that the settlement with the SEC is final,” Thomas Swidarski, Diebold’s CEO, said in a statement.

The SEC lodged the charges in a civil lawsuit filed in federal court in Washington. The agency alleged that Diebold manipulated its earnings from at least 2002 through 2007 to meet financial forecasts and that it made misstatements to investors in dozens of regulatory filings and news releases. The improper accounting practices inflated Diebold’s reported earnings by at least $127 million, the SEC said.

Diebold managers received regular “flash reports” comparing its earnings to analysts’ forecasts and then drew up “opportunity lists” of ways to close the gap between the two, according to the SEC. The so-called opportunities included fraudulent accounting transactions designed to improperly book revenue, the agency said.

“Diebold’s financial executives borrowed from many different chapters of the deceptive accounting playbook to fraudulently boost the company’s bottom line,” SEC Enforcement Director Robert Khuzami said in a statement. “When executives disregard their professional obligations to investors, both they and their companies face significant legal consequences.”

Diebold, based in North Canton, Ohio, neither admitted nor denied the SEC’s charges in the settlement but did agree to refrain from future violations of the securities laws. Diebold’s shares ended Wednesday up 88 cents, or 3 percent, at $29.08. That was their high for the day, after tumbling as low as $18.26.

Last fall, the company sold its U.S. voting-machine business to a bigger competitor, Election Systems & Software Inc. of Omaha, Neb. That triggered a Justice Department review that resulted in the merged firm — controlling more than 70 percent of U.S. voting equipment systems — being required to sell off key assets.

Diebold absorbed a big loss on the sale of the business, posting a third-quarter net loss of $7.2 million, or 11 cents a share, compared with a profit of $46.5 million, or 70 cents a share, a year earlier.

The SEC is seeking injunctions against Geswein, Krakora and Miller as well as unspecified restitution and civil fines. In addition, the agency wants Geswein and Krakora to be barred from serving as officers or directors of any public company and for them to return bonuses and other compensation under the Sarbanes-Oxley “clawback” provision.

“Mr. Geswein strongly disputes the SEC’s charges and looks forward to defending himself in the courtroom, where he is confident he will successfully defend the sterling professional reputation he has built over the years,” said Geswein’s attorney, Stephen Scholes. “We are deeply disappointed that almost five years after Mr. Geswein voluntarily left Diebold of his own initiative, the SEC has made these stale allegations,” Scholes said.

Krakora’s lawyer, John Carney, said his client is “an honest and well-respected financial professional with an unblemished record for integrity.”

“We strongly disagree with the SEC’s allegations and conclusions,” Carney said.

Miller’s attorney, Virginia Davidson, said her client “does not belong in this case. She is a good, honest, hard working person.”

Davidson added that “the SEC should never have dragged her into this case, and I’m confident that the courts will agree.”

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AP Business Writer Alan Zibel contributed to this report.