KPMG to be Named in Fraud Action

KPMG-U.S. has been caught in the net of shareholder lawsuits that will relate to accounting work performed for voice recognition software company Lernout & Hauspie. The company's auditor, KPMG-Belgium, will share defendant status with its U.S. counterpart as the shareholder suits alleging fraud go to trial. It is anticipated that shareholders will band together to file a class action lawsuit alleging that KPMG auditors should have been aware of problems with the software company's accounts.

U.S. District Court Judge Patti Saris, who ruled that KPMG-U.S. was eligible to be included in the legal action, stated [1] that "an escalating pageant of red flags" in the software company's financial statements "strongly support the inference that KPMG-U.S. acted with recklessness or actual knowledge" in helping prepare the 1999 Form 10-K for Lernout & Hauspie. The form was subsequently found to be fraudulent.

Learnout & Hauspie filed [2] for Chapter 11 bankruptcy protection in November, 2000 after restating financial reports for 1998, 1999, and the first half of 2000. Originally, KPMG issued a clean opinion of the 1998 and 1999 financials, later stating [3] that the opinions "could no longer be relied upon."

KPMG has said, "The allegations against KPMG are completely without merit. This is a decision on allowing the case to proceed, not a decision on the merits of the case or the truth of the allegations. There was massive fraud inside L&H, involving the company's executives, officers, and outside individuals as well, who engaged in a concerted effort to defraud both investors and the auditors. As the case moves forward, we will defend ourselves vigorously."