KPMG to settle Lernout for $115M

Big Four firm KPMG and its Belgian unit agreed to pay $115 million to settle a class-action shareholder lawsuit that alleged that the firm's audits of Belgium-based Lernout & Hauspie Speech Products NV violated generally accepted accounting and auditing principles.

The proposed settlement, filed in U.S. District Court here, is subject to judicial approval.

KPMG did not respond to a request for comment. However, published reports said that the firm said that its auditors "acted appropriately."

"There was massive, complex and cleverly conceived fraud at Lernout & Hauspie, involving the company's executives, officers and third parties, who engaged in a concerted effort to defraud both investors and the auditors," a statement from KPMG said.

KPMG's Belgian unit was the auditor on the Lernout engagement, but the U.S. arm of the firm was also involved.

The problems at Lernout & Hauspie, a manufacturer of speech-recognition software, came to light in 2000 when, after admitting fraud, the company collapsed in a sea of red ink.

The fraud had reached such proportions that one of the company's largest units admitted to inflating its sales by nearly 70 percent. That news subsequently punctured the company's market capitalization, which dropped from $10 billion to $2 billion before the firm was forced into bankruptcy.

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