Lernout, Hauspie Get Prison Sentences in Belgian Corporate-Fraud Case

Lernout & Hauspie Speech Products NV’s co-founders and former top executives were sentenced to as many as five years in prison for artificially inflating revenue in Belgium’s biggest case of corporate fraud.

Jo Lernout and Pol Hauspie, who together founded LHSP in 1987, as well as Nico Willaert, former vice chairman, and Gaston Bastiaens, former chief executive officer, each face three years in jail with an additional two years of probation. Dexia Bank Belgium and KPMG Bedrijfsrevisoren, auditor of the bankrupt maker of speech-recognition software, were both acquitted.

“When it became apparent by mid-1999 that they couldn’t find operational capital to fund the development of applications at the Language Development Companies, LHSP management continued to set up LDCs with the sole purpose of inflating revenue through license payments,” Judge Robert Pieters of the appeals court in the Belgian city of Ghent ruled today.

The acquittal of both Dexia Bank and KPMG Bedrijfsrevisoren leaves LHSP investors and receivers with little prospect of recovering damages. Dexia said it’s aware of claims totaling almost 1.09 billion euros ($1.42 billion), with the biggest claim coming from the Belgian receivers of LHSP, according to its latest annual report.

Dexia’s involvement in the case stems from its purchase of Artesia Banking Corp. for 3.24 billion euros in stock in 2001. Artesia granted loans to Lernout, Hauspie and Willaert and those funds were used for improper revenue recognition, according to the prosecutor’s office.

The bank agreed to pay $60 million in 2007 to settle a class-action suit in the U.S. that was brought against the company by former LHSP investors. KPMG paid $115 million in a similar case in 2004.

To contact the reporter on this story: John Martens in Ghent, Belgium at jmartens1@bloomberg.net

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