My question: the following Asociated Press article seems to imply that hundreds of millions of dollars went missing at Lernout & Hauspie Speech Products because of either malfeasance (white collar theft) or creative earnings statements (a favorite game by many Nasquack players, it seems)...although the article doesn't say explicitly what the biggest problem was, just hints about accounting irregularities and backdated contracts.

While I don't doubt shenanigans of this sort occurred (and occur in many other companies too), it would seem that in this instance the management lost control of the game. Anyone know if there might be back-office computer problems with this company? Or is the management merely crooked AND incompetent? Is the expression "a loss of focus on the rules and regulations governing public companies" Orwellian Newspeak for buggy accounting software?

(Meanwhile, let me sit and contemplate how millions of dollars simply vaporize at a high-tech company, whether through "theft" or computer error, as I struggle to balance my home checkbook--hmm, the monthly bank statement says I have 86 cents less than I think I do...how'd that happen???)

--Andre in southcentral Pennsylvania *******************************************

Audit Shows Huge Errors, Discrepancies in Books at Former High-Tech Highflyer

By Raf Casert, Associated Press Writer Dec 19, 2000 - 02:24 PM

BRUSSELS, Belgium (AP) - A long-awaited internal audit of Lernout & Hauspie Speech Products NV produced yet another scalding appraisal Tuesday of the high-tech company, once a New Economy darling but now crippled by scandal.

The audit committee found as much as $277 million may have been improperly recorded as revenue on the company's books over the past three years, according to chief executive officer John Duerden. "They found serious problems," he told a telephone conference call with international journalists.

He admitted the company was still missing some $100 million from its accounts in South Korea.

"The money isn't there," he said. "If it was there still we wouldn't have the kind of problems we have today."

The committee said some kind of disciplinary action should be considered against co-founders Jo Lernout and Pol Hauspie and other key company officers.

"This investigation has identified numerous transactions that were not properly booked, resulting in errors and discrepancies in the financial statements," it said.

Since March, some $10 billion in market value has evaporated as revelations and admissions of impropriety sank the value of L&H shares from more than $70 on the Nasdaq and Europe's Easdaq technology markets to barely $1 on the obscure, over-the-counter "pink sheet" market.

The company, which has headquarters in Ieper, Belgium, and in Burlington, Mass., makes products that, among other things, allow people to use their normal speaking voice to dictate documents and control their computers. It also makes translation software and software that reads text documents on a computer out loud.

With creditor banks demanding repayment of $430 million in debts, L&H is seeking bankruptcy protection in Belgian and U.S. courts. A Belgian court rejected its petition two weeks ago and complained about the "shabby content" of the company's restructuring plans. L&H is expected to appeal the ruling this week.

On Tuesday, Duerden said that he was looking to turn L&H "into a more focused, slimmed down" company centering on Europe and the United States.

Duerden denied speculation that L&H is particularly interested in protecting its U.S. assets, notably the Dictaphone and Dragon units.

"This is one company and the parts of it are mutually dependent. We have to be successful in both Europe and United States," he said.

The company's financial problems have largely been centered in the Far East, specifically in South Korea, where the financial tangles proved so opaque that even the internal audit could not come to conclusions.

"The issues in Korea cannot be resolved by accountants and attorneys in the context of an audit committee investigation," the audit committee said in its 72-page report.

Problems at the Belgian headquarters included the backdating of contracts and the reluctance to reveal the names of investors in companies that have been closely linked to L&H.

"We still do not know the identities of all of the original, and possibly all of the current investors, in these companies," the report said.

The audit said there were also accounting problems in L&H's U.S. headquarters in Burlington, Mass., but on a lesser scale.

In an overall assessment, the audit highlighted what has made L&H a cautionary tale of the New Economy.

"The combination of the rapid growth experienced by L&H and the market pressure to meet expectations appear to have resulted in a loss of focus on the rules and regulations governing public companies, and a failure to appreciate the need for increasing and stronger controls," the report said. *********************************************

-- Andre Weltman (aweltman@state.pa.us), December 19, 2000

Answers

Today's New York Times has a slightly expanded article on this particular mess, giving a clearer picture of financial malfeasance (without hinting at any back-office problems):

"...The Belgian offices, including the headquarters in Ieper in West Flanders, were responsible for numerous transactions that need to be restated. They include recording sales before a contract was signed and attaching secret side letters to contracts..."

Nonetheless, my questions stand. Crooked AND incompetent? Or is there more here, i.e. did they lose control of the digital money in the back office?

-- Andre Weltman (aweltman@state.pa.us), December 20, 2000.