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Court May Unseal Leslie Fay Probe

A top-secret report reviewing The Leslie Fay Cos.' internal investigation could be made public later this month.

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Byline: JEFF SIEGEL

NEW YORK -- A top-secret report reviewing The Leslie Fay Cos.' internal investigation into last year's accounting scandal that rocked the company and led it into Chapter 11 could be made public later this month.


The report, compiled by Charles Stillman, a court-appointed examiner charged with looking into Leslie Fay's handling of the accounting snafu, has been under seal since it was completed on May 27. Leslie Fay has been operating under bankruptcy protection since April 1993.

 

The report is expected to take an unvarnished look at how Leslie Fay executives handled the probe into the accounting mix-up and question the role of Weil, Gotshal & Manges, counsel to Leslie Fay. The law firm was involved in the company's internal investigation of the accounting irregularities and is handling its Chapter 11 proceedings.


The report's finding could well have repercussions outside bankruptcy court. Separate investigations are being conducted by the U.S. Attorney's office in Scranton, Pa., which has jurisdiction over the company's factories in the Wilkes-Barre area of Pennsylvania, and the Securities & Exchange Commission, which last month promised a group of Pennsylvania House members it would "expedite" its inquiry into possible SEC violations.


Under court rules, no one with a copy of the report or knowledge of its contents may comment on what it contains.


But that may change in just a few days.


On July 13, according to court filings, Bankruptcy Judge Tina Brozman will hold a conference with all involved parties. On the agenda will be whether the report -- or any responses to the report -- should remain sealed.


Those expected to attend the conference include the examiner, counsel for the unsecured creditors' committee, attorneys for the equity security holders' committee, the U.S. Trustee and Leslie Fay's lawyers.


Alan Miller of Weil Gotshal & Manges, counsel to Leslie Fay, said the company has filed a response to the report but "has not made a decision yet" on whether it will ask to have the document unsealed.


Surprisingly, the ILGWU, which fought Leslie Fay on a number of issues, did not file a response to the report. Marc Richards, counsel to the union, said he had "no comment" on whether the ILGWU would ask that the examiner's report be unsealed.


A source close to the creditors' committee said the group did not file a rejoinder to the report by the Tuesday deadline and would not seek to lift the seal.


According to Miller, the examiner's report was initially sealed to keep it under wraps until all involved parties had a chance to go over its findings.


He said that Judge Brozman will determine if the documents remain sealed or not, based on "what's in the best interests" of creditors and Leslie Fay.


As reported, Leslie Fay originally requested the appointment of an examiner on Dec. 2, 1993 "to review the investigation process and the conclusions in the audit committees confidential report and to advise the court as to whether any further action is recommended." Arthur Anderson & Co., who conducted the investigation into the accounting scandal, which was first announced by the company in February 1993, concluded that earnings had been overstated by $81 million over a three-year period beginning in 1990. John Pomerantz, Leslie Fay's chairman and chief executive officer, and other members of "top management," were cleared of any wrongdoing. On the suggestion of the report, however, Pomerantz was relieved of all financial responsibilities at the company.


That report has also never been made public.


-- Fairchild News Service

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