SEC to Review Who Pays Executive Penalties

Securities and Exchange Commission Chairman William Donaldson said Friday that the regulator will investigate the practice of companies paying securities-fraud penalties on behalf of their executives and directors.

Donaldson’s remarks came after the SEC learned that Xerox Corp. is covering the bulk of $22 million in fines and disgorgements that six former top executives, including two ex- chief executives, agreed to pay to settle SEC charges that they inflated revenue at the world’s largest copier maker.

“I’m concerned about companies that, under permissive state laws, indemnify their officers and directors against disgorgement and penalties ordered in law enforcement actions,� Donaldson said. “In my mind, this just isn’t good public policy. This is an area in which we may need to consider ways to bring about reform.�

The SEC chairman also said the agency will continue its fact-finding reviews of the hedge fund and mutual fund industries and will take a “comprehensive� look at how securities are traded.

Former Xerox CEOs Paul Allaire and G. Richard Thoman were among the six who agreed Thursday to settle regulatory charges that they inflated revenue over four years.

Former Chief Financial Officer Barry Romeril; Daniel Marchibroda, a former assistant controller; former controller Philip Fishbach; and Gregory Tayler, a former director of accounting policy and assistant treasurer, are the others. Tayler still advises the company, the SEC said.

Xerox spokeswoman Christa Carone declined to comment on Donaldson’s remarks. Though Xerox is required under a corporate bylaw to pay the disgorgement and legal fees for the six executives, they are personally responsible for paying the civil penalties instituted by the SEC, Carone said.

Under the SEC settlement, Xerox would pay $19 million of the $22-million payment, leaving the six to pay $3 million out of their own pockets.

Allaire and Romeril are each required to pay $1 million as a civil fine, and Thoman will pay $750,000 and Fishbach $100,000. Marchibroda and Tayler will each pay $75,000.