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L&H gets searing audits
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December 19, 2000: 12:36 a.m. ET
Auditors said it falsified info, overstated results to inflate stock price, Journal reports
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NEW YORK (CNNfn) - Lernout & Hauspie Speech Products NV's longtime auditor said senior officials conspired to hide and falsify information, overstate operating results and inflate the company's stock price for their personal benefit, according to a published report.
The Wall Street Journal's Web site reported Monday night that those conclusions by KPMG's Belgian affiliate were included in a Dec. 7 letter to the company's chairman.
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 DECEIT NOT DAZZLE
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The reports present the clearest case so far that the rise of Lernout & Hauspie was based on deceit and not dazzling advances in computerized speech recognition as the company purported.
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A separate, internal investigation at the troubled Belgian-American software company says that as much as $277 million or one-third of its revenue over the past 2 1/2 years may have been improperly recorded, the story said. The figure, contained in a report given to L&H's (LHSP: Research, Estimates) board late last month, is much larger than previously suspected, the Journal reported.
The reports present the clearest case to date that the rise of Lernout & Hauspie was based on deceit and not dazzling advances in computerized speech recognition as the company purported, the story said.
The reports are critical of its Belgian founders Jo Lernout and Pol Hauspie and may make it more difficult for the company to emerge intact from bankruptcy court, since they indicate the products underlying it weren't as attractive as reported results indicated, the Journal reported.
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PROBES UNDERWAY
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The Securities and Exchange Commission and Belgian authorities are probing the company, whose stock has been delisted and which has seen its market value dissolve from almost $10 billion to close to northing.
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The company filed for bankruptcy protection in the U.S. and Belgium last month after admitting to accounting irregularities, including $100 million in missing cash.
The Securities and Exchange Commission and Belgian authorities are probing the company, whose stock has been delisted and which has seen its market value dissolve from almost $10 billion to close to nothing, the story said. The company is headquartered in Leper, Belgium, and Burlington, Mass.
In response to the SEC probe and other questions, the audit committee of L&H's board of directors several months ago commissioned an inquiry by outside law firms Bryan Cave LLP, of St. Louis, and Brussels-based Loeff Claeys Verbeke, aided by accountants Arthur Andersen LLP, the Journal reported.
The company earlier asked KPMG's Belgian affiliate, its longtime auditor, to review recent results, a review which in part resulted in the accounting firm writing the letter to the chairman on Dec. 7 detailing problems that it found, the story said.
The audit-committee report details many questionable transactions, including booking of revenue before a contract was signed, secret side letters to a contract, and wrongly booked barter deals in which no money changed hands, the story said.
The report also recommends that the board consider taking disciplinary action against Lernout and Hauspie, former Chief Executive Gaston Bastiaens, and former vice-chairman Nico Willaert, the Journal reported. All except Lernout resigned from their board positions the day the report was presented to L&H's board in late November.
Lernout declined to comment, while Hauspie's wife said he was unavailable. Bastiaens hung up on a reporter seeking comment, the story said. Willaert recently declined to comment on his role in the accounting irregularities, saying that, "as a managing director, I had a lot of responsibilities. So, I guess I can be associated with everything and nothing," the story said. 
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