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EDS Settles SEC Investigation, Will Pay $500,000

Electronic Data Systems has agreed to pay nearly $500,000 to settle an investigation into accounting irregularities alleged to have occurred from 2001 to 2003.

The Securities and Exchange Commission posted the settlement on its Web site Tuesday.

The SEC said EDS failed to disclose the costs of some derivatives contracts, used faulty assumptions to estimate revenue and expenses for a large contracts and didn't disclose "an extraordinary transaction" with a major customer that boosted EDS's reported cash flow by $200 million in 2000.

Also, the SEC said, a former employee made bribes to officials in India.

In the settlement, EDS neither admitted nor denied wrongdoing.

Plano-based EDS, which runs computer systems and call centers for other companies, had disclosed the proposed settlement in previous SEC filings. The company said the terms of the settlement wouldn't have a material financial impact.

"We are pleased that the investigation is resolved and that we can put these historical matters behind us," said EDS spokesman Bob Brand.

Cost Controls Gone Wrong

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 up front 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 said EDS also lowballed estimates of work it would have to perform under a multi-billion-dollar contract with the U.S. 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.

Under the settlement with the SEC, EDS agreed to pay $490,902, including interest.

Most of the incidents occurred during the tenure of Chairman and Chief Executive Richard H. Brown, although the company didn't uncover the bribes in India until after Brown was replaced by Michael H. Jordan in early 2003. Jordan stepped down as CEO this month and was succeeded by Ronald A. Rittenmeyer.

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