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L&H subpoeanead by SEC

Accounts sous investigatione

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Speech and language specialist Lernout & Hauspie has been subpoeanaed by the SEC because the agency wishes to investigate its previous years' accounts.

Such an action is more serious than a previous action by the SEC concerning how research in progress was accounted for - a move that the SEC also made against a considerable number of other US companies.

This time the investigation is centred on what are called related party transactions between entities in which the co-chairmen Jo Lernout and Pol Hauspie do or may have an interest, and L&H the company. One example is the enigma of the Brussels Translations Group that was acquired by L&H after it completed a contract to improve Internet machine translation for L&H. It is unusual that the $62 million of goodwill shown on L&H's books is being amortised over 15 years, in view of the speed of development of the technology.

Messrs L&H are adamant that there was no L&H money in the company, and the original shareholders - as the Belgisch Staatsblad of 28 March 1997 makes clear - were Van Deun Consult of Arendonk, Belgium and
Cevennes SA, a company registered in Luxembourg.

A question about the accuracy of L&H's claims for its substantial claims about its Korean sales was raised in a Wall Street Journal article last month.

The worldwide mid-year audit that L&H called for from it auditor KPMG after the allegations is still in progress. L&H said in a statement that it was cooperating fully with the SEC investigation. In addition, L&H's audit committee has initiated an investigation and retained counsel, although whether this is a defensive move or whether defamation actions are contemplated is not known. The criterion for judgement will be whether shareholders have suffered as a result of any relate party transactions. Meanwhile, L&H says it is business as usual.

Marc Cohodes of Rocker Partners, a prominent shorter of L&H stock, is jubilant at the SEC news, claiming it was "game/set/match" and "a total scam here". Last night, L&H's share price closed at $15.125, down $6.125 on the day. ®

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