US regulator to charge KPMG over Xerox

The securities & exchange commission is to file civil fraud charges against KPMG for its role in an alleged accounting fraud at the copier firm Xerox.

The complaint from the US regulator is expected to be filed in a New York federal court as early as next week and will also charge several individuals, including three cur rent and one former partner of the accounting firm.

In a statement pre-empting the charges, KPMG said it had learned of the SEC's intent and described it as a "great injustice".

The complaint relates to allegations that Xerox improperly booked revenues between 1997 and 2000. In April, the SEC settled the charges with Xerox and the company paid a $10m (£6.25m) fine - the largest ever penalty for inaccurate financial reporting.

The planned charges will be another blow to the reputation of the accounting industry, which came under scrutiny last year when Arthur Andersen was forced out of business because of its dealings with Enron, the bankrupt energy firm.

The investigation into KPMG centred on whether the auditors had become too close to the firm and had failed in their role as watchdog.

Xerox, which had used KPMG for decades, fired the firm in late 2001 and replaced it with PricewaterhouseCoopers. That led to a restatement of $6.4bn in revenues.

KPMG said it stands firmly behind its audits of Xerox and gave its support to the four partners implicated.

Eugene O'Kelly, KPMG's chief executive, said he sup ported the SEC campaigning for reform in the financial markets. But he added: "Unfortunately, today's charged regulatory environment has resulted in inappropriate actions being taken. In this case, the result is a great injustice to KPMG and the four partners involved. At the very worst this is a disagreement over complex professional judgments."

The SEC declined to comment.