L&H mired in fraud

The first is a report, produced by two external law firms, presented to the audit committee of the L&H board in November.

It recommends disciplinary action against both L&H co-founders, Jo Lernout and Pol Hauspie. Former chief executive Gaston Bastiaens and vice chairman Nico Willaert were also implicated. All except Lernout have since resigned, according to documents leaked to the Wall Street Journal.

The alleged wrongdoings are extensive and diverse. The report says that L&H claimed tens of millions of dollars, were revenue when they were in fact off-balance-sheet research and development monies. L&H also bartered software and recorded the deals as sales.

Further allegations surround the Flanders Language Valley venture fund set up in part by the L&H founders. L&H salespeople allegedly charged L&H customers "finders fees" for putting them in touch with the FLV fund, in the form of L&H licence fees which were not declared to FLV.

The Wall Street Journal has also spoken to an unnamed L&H insider who saw a letter from the company's auditors, KPMG Belgium, to the new Chairman, Roel Peiper, dated early December.

The letter alleges that former executives conspired to "'hide and falsify information, with the aim of overstating operating results and inflating the L&H's stock price for their personal benefit."

The letter also states that $30m of funds missing from FLV, which it had previously claimed had been illegally pledged as collateral for loans given to then L&H Korea boss Joo Chul Seo, was even more mischievously misdirected.

It was, says the letter, used to prop up an undersubscribed second offering of FLV shares. Belgian Bank KBC is also implicated by the letter, but denies all allegations.