Accounting firm KPMG and a Belgian affiliate agreed Thursday to pay $115 million to settle a shareholder lawsuit claiming the companies failed in their audit of Lernout & Hauspie Speech Products, which later collapsed.
In the 1990s, Lernout & Hauspie was recognized as a world leader in the software that recognizes human speech and turns it into computer text.
But the Belgian company, with U.S. operations in Burlington, Mass., collapsed about four years ago and later admitted fraud, including fabricating 70% of the sales in its largest unit. A lawsuit pending in federal court claims former company executives used deceptive accounting practices to inflate the company's revenue 64%, or $377 million, over a 2 1/2 -year period.
"Lernout & Hauspie used almost every accounting trick in the book to scam investors, which led to the company's demise," said Jeffrey Block, one of the plaintiffs' attorneys. "The recovery is a win for investors, particularly considering the company went bankrupt."
A statement Thursday by New York-based KPMG and the Belgian member firm of KPMG International said they "deny all allegations and any liability," and settled the case "based on practical business reasons."
The settlement amount is the third-largest with a U.S. auditing firm in a shareholder lawsuit alleging a failed audit, Block said.
KPMG agreed last year to pay $125 million to end a lawsuit involving an audit of Rite Aid Corp. And Ernst & Young agreed to a $335-million settlement over its auditing of Cendant Corp., the travel and real-estate company that made a massive earnings restatement.