Lernout & Hauspie Speech Products NV (L&H), which is fighting to avoid a possible liquidation, disclosed the results of an internal audit Tuesday that found “serious problems” with the beleaguered speech-recognition software vendor’s business practices and recommended disciplinary action against four current and former executives.
The report charged the senior management team that ran the company until this fall with trying to inflate the company’s stock price for personal gain and with attempting to hide information about its financial accounting and other corporate activities.
The report, prepared by an internal audit committee and attorneys from two outside law firms, said Belgium-based L&H should discipline co-founders Jo Lernout and Pol Hauspie plus two other executives, including former CEO Gaston Bastiaens.
Lernout and Hauspie gave up their management jobs at L&H in a restructuring last month, although Lernout remained with the company as vice chairman and head of its technology advisory committee. Bastiaens, meanwhile, resigned from the company in August after its financial problems began to emerge.
The internal audit began late last summer, at roughly the same time that the U.S. Securities and Exchange Commission launched its own investigation of L&H after questions were raised about some of the company’s reported sales to users in Asia. L&H filed for bankruptcy protection in the U.S. three weeks ago, shortly after discovering that about US$100 million was missing from its Korean subsidiary.
Roel Pieper, who became L&H’s chairman in the recent management shake-up, said last Friday that the $100 million hadn’t vanished but was simply inaccessible to company executives. However, new CEO John Duerden admitted during a conference call Tuesday that the company hasn’t been able to locate the cash.
“I wish I could say the money is inaccessible,” Duerden said. “But the money is not there. We are looking at what happened to it.” L&H was able to recoup several hundred thousand dollars earlier this year from the South Korean unit, Duerden added. But the remainder “is not in the banks,” he said. “If we had it, we wouldn’t have the problems we have Tuesday.”
Last month, L&H said it would have to restate financial results dating back to 1998 after discovering “certain errors and irregularities” during its audit. The company also has been seeking bankruptcy protection under Belgian laws, but a judge there rejected its request two weeks ago – a decision that left L&H facing a possible liquidation.
L&H, which has its U.S. headquarters in Burlington, Mass., vowed to appeal the ruling. But in a second decision issued last week, the Belgian court froze the company’s assets and appointed a trio of administrators to monitor its business activities.
During Tuesday’s conference call, Duerden said L&H still plans to file an appeal of the Belgian court’s decision this week. He also said that the company’s external auditor, a Belgium-based unit of KPMG Consulting LLC, is expected to resume working with L&H after receiving the report prepared by the internal committee.
Duerden added that he plans to “spend most of my time and energy developing and implementing a realistic plan to consolidate the very real and valuable assets of this company.” And he cautioned against assigning guilt to the executives named in the internal report, saying they’re “entitled to the presumption of innocence and fairness as the investigation continues.”