

SEC Charges Diebold and Former Executives With Accounting Fraud FOR IMMEDIATE RELEASE

2010-93 Washington, D.C., June 2, 2010 — The Securities and Exchange Commission today charged Diebold, Inc. and three former financial executives for engaging in a fraudulent accounting scheme to inflate the company's earnings. The SEC separately filed an enforcement action against Diebold's former CEO seeking reimbursement of certain financial benefits that he received while Diebold was committing accounting fraud. The SEC alleges that Diebold's financial management received "flash reports" — sometimes on a daily basis — comparing the company's actual earnings to analyst earnings forecasts. Diebold's financial management prepared "opportunity lists" of ways to close the gap between the company's actual financial results and analyst forecasts. Many of the opportunities on these lists were fraudulent accounting transactions designed to improperly recognize revenue or otherwise inflate Diebold's financial performance. Diebold — an Ohio-based company that manufactures and sells ATMs, bank security systems and electronic voting machines — agreed to pay a $25 million penalty to settle the SEC's charges. Diebold's former CEO Walden O'Dell agreed to reimburse cash bonuses, stock, and stock options under the "clawback" provision of the Sarbanes-Oxley Act. The SEC's case against Diebold's former CFO Gregory Geswein, former Controller and later CFO Kevin Krakora, and former Director of Corporate Accounting Sandra Miller is ongoing. Additional Materials Litigation Release No. 21543

SEC Complaint v. Diebold

SEC Complaint v. O'Dell

SEC Complaint v. Geswein, Krakora, and Miller "Diebold's financial executives borrowed from many different chapters of the deceptive accounting playbook to fraudulently boost the company's bottom line," said Robert Khuzami, Director of the SEC's Division of Enforcement. "When executives disregard their professional obligations to investors, both they and their companies face significant legal consequences." Scott W. Friestad, Associate Director of the SEC's Division of Enforcement, added, "Section 304 of Sarbanes-Oxley is an important investor protection provision because it encourages senior management to proactively take steps to prevent fraudulent schemes from happening on their watch. We will continue to seek reimbursement of bonuses and other incentive compensation from CEOs and CFOs in appropriate cases." Section 304 of the Sarbanes-Oxley Act deprives corporate executives of certain compensation received while their companies were misleading investors, even in cases where that executive is not alleged to have violated the securities laws personally. The SEC has not alleged that O'Dell engaged in the fraud. Under the settlement, O'Dell has agreed to reimburse the company $470,016 in cash bonuses, 30,000 shares of Diebold stock, and stock options for 85,000 shares of Diebold stock. According to the SEC's complaint against Diebold, filed in U.S. District Court for the District of Columbia, the company manipulated its earnings from at least 2002 through 2007 to meet financial performance forecasts, and made material misstatements and omissions to investors in dozens of SEC filings and press releases. Diebold's improper accounting practices misstated the company's reported pre-tax earnings by at least $127 million. Among the fraudulent accounting practices used to inflate earnings and meet forecasts were: Improper use of "bill and hold" accounting.

Recognition of revenue on a lease agreement subject to a side buy-back agreement.

Manipulating reserves and accruals.

Improperly delaying and capitalizing expenses.

Writing up the value of used inventory. Without admitting or denying the SEC's charges, Diebold consented to a final judgment ordering payment of the $25 million penalty and permanently enjoining the company from future violations of the antifraud, reporting, books and records, and internal control provisions of the federal securities laws. The SEC charged Geswein, Krakora, and Miller, in a complaint filed in U.S. District Court for the Northern District of Ohio, with violating Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934, and Exchange Act Rules 10b 5 and 13b2-1; and aiding and abetting Diebold's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rules 12b-20, 13a-1, 13a-11, and 13a-13. In addition, the SEC charged Geswein and Krakora with violating Exchange Act Rules 13a-14 and 13b2-2 and Section 304 of the Sarbanes-Oxley Act. The Commission seeks permanent injunctive relief, disgorgement of ill-gotten gains with prejudgment interest, and financial penalties. The SEC also seeks officer-and-director bars against Geswein and Krakora as well as their reimbursement of bonuses and other incentive and equity compensation. Scott Friestad, Robert Kaplan, Brian Quinn, Christopher Swart, Pierron Leef, and Kristen Dieter conducted the SEC's investigation in this matter. Litigation efforts in the ongoing case will be led by David Gottesman and Robyn Bender. The SEC acknowledges the assistance of the U.S. Attorney's Office for the Northern District of Ohio and the Federal Bureau of Investigation. # # # For more information about these enforcement actions, contact: Scott W. Friestad

Associate Director, SEC Division of Enforcement

(202) 551-4962 Brian O. Quinn

Assistant Director, SEC Division of Enforcement

(202) 551-4982 http://www.sec.gov/news/press/2010/2010-93.htm

Modified: 06/02/2010