Lernout & Hauspie Founders Are Arrested On Forgery, Stock Manipulation Charges
April 30, 2001
Tech Center
By JOHN CARREYROU
Staff Reporter of THE WALL STREET JOURNAL
IEPER, Belgium -- Jo Lernout and Pol Hauspie, founders of Lernout & Hauspie Speech Products NV, were arrested on charges of forgery and stock-price manipulation hours before the company's new management informed shareholders that it would liquidate assets to pay creditors.
The district attorney of Ieper, the small Belgian town where L&H has its headquarters, announced the arrests Friday, just as an extraordinary meeting of the company's shareholders was getting under way. The meeting was the first gathering of L&H shareholders since an accounting scandal erupted last year over reports that the company had overstated revenue.
1 Lernout to Explore Selling Most Assets to Help Repay Its Mountain of Debt (April 27)
2 Lernout & Hauspie Files Lawsuit Against Korean Executives, Banks (April 26)
3 Court Rules on L&H Creditors' Claims, Company's Debts Total $500.1 Million (April 17)
4 Auditor's Investigation Finds 70% of Sales at Lernout & Hauspie Unit Were Fake (April 9)
Nico Willaert, L&H's former vice chairman and a close associate of Messrs. Lernout and Hauspie, was also arrested on the same charges, said Jean-Marie Coppens, Ieper's district attorney. Messrs. Lernout and Willaert are being held in a prison in Ieper, while Mr. Hauspie is detained in nearby Bruges, Mr. Coppens said. All three are scheduled for arraignment this week.
The arrests are the latest turn in a nine-month-old saga that began when The Wall Street Journal raised questions about a sudden surge in Asian revenue for L&H, a maker of advanced speech-recognition and translation software. By late last year, L&H had admitted to accounting "irregularities" and filed for bankruptcy protection. Its share price plunged, Messrs. Hauspie and Lernout resigned.
Last week's arrests came as L&H's new management, headed by Philippe Bodson, revealed that a new audit has uncovered an additional $96 million in fictitious sales. That brings the tally of fake sales from early 1998 to mid-2000 to $373 million, or 45% of reported revenue.
Excluding Mendez, a translation unit that operates separately and whose accounting has been deemed accurate, L&H reported $535 million in revenue during those 2 1/2 years. But Mr. Bodson said only $162 million of that was real revenue, suggesting that inflated sales at L&H's Korean unit were only a small part of the alleged scam.
At Friday's shareholder meeting, Mr. Bodson said he had decided to sell all of L&H's assets to repay debt, but warned that L&H might become insolvent before buyers are found. Midyear is "going to be critical," he said. "Time is running out."
Write to John Carreyrou at john.carreyrou@wsj.com5
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