BISYS has agreed to pay $25 million to settle a case filed against it by the SEC. Under terms of the settlement BISYS neither confirms or denies the allegations. The case stems from allegations that former BISYS officers and employees engaged in a variety of improper accounting practices that resulted in an overstatement of the company's reported financial results for the fiscal years ended June 30, 2001, 2002, and 2003 by roughly $180 million. The improper account practices were based mainly in the company's insurance division, but occurred in some other departments as well.

On May 23, 2007, the Securities and Exchange Commission filed a civil injunctive action in United States District Court for the Southern District of New York charging The BISYS Group, Inc., a leading provider of financial products and support services, with violating the financial reporting, books-and-records, and internal control provisions of the Securities Exchange Act of 1934. BISYS has agreed to settle the case, without admitting or denying the Commission's allegations, and has agreed pay approximately $25 million in disgorgement and prejudgment interest.

The Commission's complaint, filed in federal court in Manhattan, alleges that from July 2000 through December 2003, former BISYS officers and employees engaged in a variety of improper accounting practices that resulted in an overstatement of the company's reported financial results for the fiscal years ended June 30, 2001, 2002, and 2003 by roughly $180 million. The improper accounting practices were primarily based in the company's Insurance Services division, but also occurred in other divisions of the company.

The Commission's complaint alleges that the improper accounting practices were a product of a corporate focus by former management on meeting aggressive, short-term earnings targets and a lax internal control environment.

* Throughout the relevant period, the Insurance Services division was a major factor in the company's success in achieving its earnings targets. The division's finance department allegedly responded to the corporate focus on making numbers by engaging in improper accounting practices.

* Although Insurance Services had grown rapidly through a series of acquisitions, during the relevant period, the company failed to adopt and implement adequate controls over the accounting function of the acquired companies as they were integrated. Among other things, the company lacked adequate controls for reconciling account balances or tracking receivables and lacked controls adequate to ensure that the assumptions used in estimating revenue and renewal commissions were valid.

* With respect to Insurance Services, the complaint alleges that BISYS improperly recorded as its own revenue commissions earned by companies acquired by BISYS before they were acquired; failed adequately to reserve against a substantial aging receivable balance; improperly accounted for renewal and bonus commissions; and made other improper accounting entries that overstated revenue or reduced expenses. The Commission's complaint further alleges that BISYS also engaged in improper accounting practices in other divisions of the company.

The complaint alleges that the improper accounting practices within the Insurance Services division resulted in an overstatement of BISYS's reported pre-tax earnings by roughly $118 million for the fiscal years ended June 30, 2001, 2002, and 2003, and by 34.3%, 38.9%, and 20.6%, respectively, in each of those fiscal years. The improper accounting practices in BISYS's other divisions overstated the company's pre-tax earnings by an additional $60.9 million for the same period.

The complaint alleges that as a result of these and other improper accounting practices, BISYS filed annual and quarterly reports with the Commission that included financial statements that were inaccurate and misleading. In addition, the company's overstated financial results were incorporated in annual reports to shareholders, press releases, and offering documents including registration statements.

The complaint alleges that by engaging in this conduct, BISYS violated the financial reporting, books-and-records, and internal controls provisions of the Exchange Act. Specifically, the complaint alleges that BISYS violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder. The complaint further alleges that BISYS received approximately $20 million in ill-gotten gains as a result of its issuance of convertible debt, stock, and options at prices that were inflated as a result of its violations.

Without admitting or denying the Commission's allegations, BISYS has agreed to settle the charges by consenting to a permanent injunction against further violations of the relevant reporting, books-and-records, and internal controls provisions of the federal securities laws, and it has agreed pay disgorgement and prejudgment interest totaling approximately $25 million.

Edited by: Erin Kello

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