According to the SEC, Lernout & Hauspie Speech Products, N.V.("L&H" or the Company) develops, licenses, and provides speech and language technologies and is headquartered in Ieper, Belgium and Burlington, Massachusetts.
The lawsuit is pending in the United States District Court for the District of Massachusetts against various former officers and directors of the Company, the Company's auditors, and certain financial institutions (collectively, the "Defendants") for violations of the federal securities laws. It is the only United States class action filed on behalf of purchasers of L&H securities on the EASDAQ stock market. The Complaint alleges that the Defendants engaged in a massive accounting fraud, at the direction of its Senior Officers, which resulted in the overstatement of L&H's publicly reported revenues from its first quarter of fiscal year 1998 through its first two quarters of fiscal year 2000, by a total of US$377 million (64% higher than its actual earnings). The Complaint states that L&H engaged in numerous illegal accounting irregularities ranging from back-dating contracts to prematurely recording revenue, to swapping goods with customers and recording the swap as revenue, to recording revenue even when the sales contract was not yet negotiated or signed, to giving customers side-agreements and the right to return the product.
In addition, L&H, along with Dexia Bank Belgium (formerly known as Artesian Banking Corp. S.A.), set up 30 companies which allegedly licensed millions of dollars worth of software from L&H. L&H improperly recorded all the purported revenue it received from these companies, the purpose of which was to "pump up" L&H's publicly reported revenues and benefit L&H's major shareholders -- FLV, Mercator and the Company's officers. The Complaint goes on to allege that L&H could not have perpetrated this massive accounting fraud without the collaboration of its auditors, including KPMG, and its banks, including Dexia.
The Complaint further alleges that on or around August 8, 2000, The Wall Street Journal revealed the widespread fraud that had allegedly been concealed by L&H and KPMG and others. The August 8, 2000 article disclosed that the revenues, and the resulting net income and earnings per share that L&H had reported in the fourth quarter of 1999 and first quarter of 2000, were overstated. On this news, the Company's common stock declined dramatically by 19% from the previous day's close of US$37 per share to US$29-13/16 per share, trading as low as US$26-3/4 per share. Then, after months of denials, on November 9, 2000, L& H issued a press release announcing that as a result of past accounting "errors and irregularities" the Company would need to restate the most recent 2-1/2 years of financial statements. The Company also warned that its third quarter 2000 revenues would "be at least US$40 million below its previously published range of US$165 to US$185 million." The Company further announced that KPMG's mid-term audit would not be completed by November 14, 2000. In reaction to theses disclosures, on November 9, 2000, both NASDAQ and EASDAQ suspended trading of L&H securities. Prior to the suspension, the price of L&H securities on the NASDAQ market fell as low as US$6.22 and the price of the common stock on EASDAQ fell to as low as US$ 3.70.
On January 4, 2006, the Court entered the Order signed by U.S. District Judge Patti B. Saris granting the motion for appointment of lead Plaintiffs and approval of choice of lead Counsel. On May 15, 2006, the Plaintiffs filed an Amended Complaint, and the Defendants responded by filing motions to dismiss the Amended Complaint.
On December 18, 2006, the Plaintiffs filed a Motion for Default Judgment as to defendants Jo Lernout, Pol Hauspie, and Carl Dammekens. In January 2007, Judge Patti B. Saris granted the motion for Default Judgment. On February 12, 2007, U.S. District Judge Patti B. Saris issued the Memorandum and Order granting the several motions to dismiss the Amended Class Action Complaint. The civil case is terminated.
