This story was written by Keith Dawson for the Industry Standard's Media Grok email newsletter. It is archived here for informational purposes only because The Standard's site is no more. This material is Copyright 1999-2001 by Standard Media.

Translate This: 'Oopsie'
Nov 10 2000 12:00 AM PST

The speech-recognition software maker Lernout & Hauspie is under investigation from all sides, and it may have to take back some statements.

Lernout & Hauspie, the Belgian-U.S. maker of speech recognition and translation software, had plenty of trouble on its hands before yesterday's announcements. It had begun an audit by its regular accountants, KPMG, in August, and a separate internal examination in September. It was being investigated by the SEC and the European stock market, the Easdaq. It was fighting off threatened shareholder lawsuits. And the company had lowered earnings estimates for the coming quarter.

On Thursday Lernout & Hauspie announced that its internal audit had turned up "certain errors and irregularities" that will force it to restate earnings for the past two and a half years. Trading was halted ("indefinitely," according to the Wall Street Journal) on the Nasdaq and the Easdaq. The company reduced its earnings expectations once again and announced a major management shakeup.

Writing for the Financial Times, Caroline Daniel covered the facts and left opinion to the editorial voice of "Lex." This editorial speculated on possible purchasers of parts of the company if Lernout & Hauspie is broken up, and raised the possibility of new lawsuits over acquisitions - especially those of Dragon and Dictaphone - "should it become apparent they were made with shares valued on the basis of erroneous data."

The Boston Globe, hometown paper to one-half of L&H's headquarters (the former Dragon Systems), offered only Reuters wire coverage of the story. The heftiest analysis was turned in by the Wall Street Journal, the outlet whose August stories initiated L&H's public tribulation. (Herb Greenberg at's RealMoney was another longtime chronicler of L&H's fuzzy math.) John Carreyrou and Mark Maremont (with additional reporting by Jesse Eisinger) got an official of the American Institute of Certified Public Accountants to translate the accounting term "irregularities" as "intentional misstatements or omissions" in financial statements. Lest you miss the significance, the official added that the term's meaning includes "fraudulent financial reporting undertaken to render financial statements misleading, sometimes called management fraud."

The Journal's reporters also talked to Patrick Michielsen, an analyst who follows L&H for a Belgian bank. Michielsen opined that the need to restate two years of audited financial statements "suggests that KPMG didn't do its job properly." Ouchie. - Keith Dawson

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