Speech recognition boss arrested on fraud

A former chief executive of Belgium's troubled Lernout & Hauspie Speech Products (L&H) is in jail after being arrested on a Belgian warrant accusing him of fraud and other charges.

Authorities arrested 54-year old Gaston Bastiaens on Saturday while he was sunbathing in the back yard of his home in a Boston suburb, Chief Deputy US Marshal Timothy Bane told Reuters.

Before fraud allegations surfaced, L&H was Europe's largest maker of speech recognition and translation software. It also attracted millions of dollars in investment from software giant Microsoft.

Accounting and fraud allegations last year sent L&H stock into a tailspin, erasing nearly US$10 billion in shareholder value. Bastiaens is expected to appear in court on Tuesday to face charges of financial fraud, insider dealing, stock market manipulation, violating bookkeeping laws and swindling, Bane said, reading from the warrant.

Bastiaens was president and chief executive of the company when the Wall Street Journal and others reported accounting irregularities at its South Korean subsidiary.

An investigation by the US Securities and Exchange Commission followed and the company's accountant, KPMG, said its auditor's report for L&H's 1998 and 1999 financial statements should no longer be relied upon.

After an internal company audit, L&H said it would have to restate its revenue from 1998 to the first half of 2000. The company also said a cash shortfall of about US$100 million was discovered at its South Korean subsidiary. Most of the unit's sales were fictitious, according to an audit commissioned by the company.

The company's board forced Bastiaens to resign last November. The Nasdaq stock market has since delisted the company's stock and the EASDAQ, the pan-European stock market, suspended the company's shares indefinitely.

Several L&H directors and executives, including founders Jo Lernout and Pol Hauspie, have resigned from the company amid the scandal.