Lernout & Hauspie Speech Products N.V. or otherwise called as L&H was one of the outstanding company at Belgian. This is because L&H was a licensor, provider and developer of speech and language technologies at that time. The company was set up in 1987 by Jo Lernout and his partner Pol Hauspie. The CEO was Gaston Bastiaens. This company was located and managed in Ieper, Belgium and Burlington, Massachusetts. Beforehand, Jo Lernout work as a sales executive with the Belgian arm of Wang Laboratories a manufactured of the voice-mail system and found his partner, Hauspie who owned a small software firm that made accounting software. Lernout turned out with the thought for a company to create voice acknowledgment software that permitted phone users to settle on decisions by speaking. L&H focused were to change the way that human and technology interacted completely by enabling speech recognition to be used for a wide assortment. So, they offer speech and language solutions for up-and-down markets and businesses including the Internet, the automotive industry and broadcast communication.
ACHIEVEMENTS OF L&H
During the early start-up of the business, they are confronting an early budgetary battle. But, the company was both fictitious and inventive. This is because they had $375 thousand a year in Research and Development appropriations by the local Belgian government and in addition, more than $1.5 million from the risk capital fund GIMV. Other than that, the private investors additionally gave $550 thousand in their initial five years of the business.
L&H had aspiring plans to create as a company, as well as to be the leading technological revolution in West Flanders. They opened Flanders Language Valley (FLV) in 1997. L&H quickly became Flanders’ pride. The company was seen as a representative of the new Flanders, which focused on a high-technologies futures. In the year 2000, they take over two bigger competitors of U.S. technology corporations which were Dictaphone Corporation at $504 million in stock and Dragon Systems at $460 million in stock. In 1995, they went public and was listed on the NASDAQ and EASDAQ. Begin from this, L set up an investment pool called FLV Fund. L had a market capitalization valued at $8 billion at its peak and this had pulled investments from Microsoft and Intel. In 1997, Microsoft licensed L text-to-speech software and took 10% stake in the company at a cost of $60 million while Intel Corp. at a cost of $30 million to developed e-commerce products. This soared L to earth curiosity.
BUSINESS THAT INVOLVED IN FRAUD
In September 1996, Dictation went into a first $5 million contract with them to authorize certain speech-to-text technology. Almost three months afterward, Dictation and L went into another contract whereby Dictation would pay them $25 million to create software utilizing the technology at one time authorized to Dictation. Dictation was their biggest revealed client in 1996 and 1997. L perceived income through its implied software advancement contract with Dictation of $27 million including both years. In May 1998, they obtained Dictation for $43.3 million before they built up any marketable product for Dictation. Hence, L purchased again their own R products at a scarce of over $16 million. By neglecting to legitimately represent their settlement with Dictation, L materially overstated its revealed income for 1996 by a 31% overstatement and 1997 by 23% overstatement.
The arrangement with Dictation worked so well that influence them to develop a new company. On 13 March 1997, Brussels Translation Group N.V. was established and they went into a $5 million licensing contract with L to develop translation software at that same time. In the meantime, BTG agreed to pay L $30 million for R services. This expanded revealed income to nearly $212 million in the year 1998 and $344 million in the year 1999. By neglecting to legitimately represent their settlement towards BTG, L physically misrepresents their revealed income for the year 1997 by 18% overstatement and 1998 by 9% overstatement.
By the end of 1998, they cannot acquire any additional income support from BTG and Dictations settlement. Moreover, it does not create enough business inquiry for its technology to allocate for persistence notable income growth. To reinforce their revealed income, they propelled another scheme by making extra L clients. These new clients are known as Language Development Companies (LDC), the private companies which empowered them to assert income of $8.5 million in prepaid royalties and $102 million in permit fees for the year 1998 and 1999, bring a fictitious effect of expanding growth. In addition, L would not freely differentiate the LDCs income in their financial statements, yet rather would be covered in general income statements. Most of them were consolidated in Singapore where the several managing directors of LDCs was a Belgian national united. In fact, the LDCs were least than Dictation and BTG invent, as methods for them to inappropriately create incomes. These transactions were utilized to finance their own R endeavors since they had the capacity to purchase these company at a premium if the investment bank cannot found shareholders to finance its. Started from 1998 until 1999, L announced income of $110.5 million from them, material parts that were inappropriately perceived.
In September 1999 until June 2000, they recorded around $175 million in sales income through their Korean operations, the false part of lion’s share. This is because they have fake clients with fake transactions and real clients with fake or overstated transactions. The lion’s share of this income was fraudulent due to three reasons. To begin with, L’s Korean Subsidiary occupied with “sales” subject to oral and written side agreements like L&H could not seek collection of license fees until the client produced adequate income from the utilization of L&H software to cover those charges. Next, they joined the side agreements with 4 Korean banks. Banks required them to keep up closed deposits to fulfill any uncollectible receivables. So, these settlements were basically completely accessed loans from the banks to Korean operations, instead of sales of receivables to the banks. Finally, they organized to have 3rd parties to buy license reconciliations against clients. By this scandal, they actually paid down their own receivables, at the same time making the presence of effectively gathering client’s fees, which in fact does not be gathered. Through the fake Korean sales, they overstated their income started from September 1999 until June 2000 for at least $114 million.
ALLEGATIONS TOWARDS L
The main claimed was about L who specifically or unintended, has utilized gadgets, scandals, or artifacts to deceive, needs to acquire cash or assets, put forth false expressions of actual fact or discarded to form actual certainties required to make the statement made, not false or has occupied with acts, practices, or business courses which work or had worked as a scandal or misleading to any individual, disregarding Section 17(a) of Securities Act and Section 10(b) of Exchange Act. Also, L recorded tangibly false and misleading yearly reports, quarterly also different records from the SEC in between the year 1996 until 2000 and L have neglected to document yearly, quarterly also different records from the SEC started from June 2000 until the present, disregarding Section 13(a) of the Exchange Act. Ultimately, L neglected to create and store a books, reports and financials which precisely and genuinely reflected their settlements and tendency of the assets, disregarding Section 13(b)(2)(A) of Exchange Act, and neglected to discover and keep up an arrangement of interior bookkeeping controls adequate to give sensible assurance that its corporate settlement was accomplished in line with management’s approval and in a way of authorizing the preparation of financial statements that are appropriate to the accounting guidelines, disregarding Section 13(b)(2)(B) of Exchange Act.
HOW THEY GET CAUGHT
After a couple of time, L&H was engaged with news about financial scandal and in the year 1999, the Wall Street Journal has alleged that income of L&H has been exaggerated. More study done by WSJ staff member which was Jesse Eisinger prompted a disclosure of a main financial scheme including a counterfeit transaction in Korea and despicable financing procedures somewhere on 8 August 2000. Proceeded with investigation revealed a scope of distortion in their account, which prompted the recommendation that they had advertised their own achievement as a method for controlling the share price, where at last became free-fall as a result of the accusations. As rumors about L&H financial scandal became public through the press, the price their stock drop significantly, dropping from $72.50 in March 2000 to $0.76 on December 29, 2000. The L&H stock was delisted from NASDAQ on December 2000 and along these lines, on March 2001, the company intentionally delisted from EASDAQ.
In April 2001, Jo Lernout and Pol Hauspie the founders, and Gaston Bastiaens the CEO were seized for the biggest company scandals ever. Each of them was condemned to five years prison where three years successfully and two years trial for misrepresentation by the Ghent Court of Appeals. They have been accused of stock market manipulation, fraudulent and criminal conspiracy. On 25 October 2001, they finally declared as bankrupt, after they have been sought for a year and its assets have been purchased by US Company Scansoft. Moreover, “Lernout and Hauspie Michelle” and “Lernout and Hauspie Michael” are text-to-speech voices and a grammar checker formerly made and possessed by L&H. They are generally accessible with Microsoft Office 2003, Microsoft Reader, or Microsoft Agent.
CONCLUSION AND LESSON LEARNT
As a conclusion, the management can easily make a false document or report a financial statement. So, investors should examine the investment closely to ensure that they understand the company financial statement before they start investing in the company.