Byline: Rich Wilner

NEW YORK--Shareholders of The Leslie Fay Cos. charged the apparel maker's former accountants Tuesday with recklessly and negligently allowing the firm's accounting scandal to fester for more than two years.
In a complaint filed in bankruptcy court, Leslie Fay's Committee of Equity Security Holders charged BDO Seidman and at least 11 partners failed to advise senior management of shortcomings in the company's internal controls, failed to react to unsupported journal entries that falsely inflated inventory during a period of declining sales, and failed to sound an alarm when it found in two separate yearend audits that Leslie Fay was "prebilling" invoices.
A BDO attorney called the shareholders' suit "unjustified and hypocritical" and said it was "unconscionable for a company that engages in fraud to claim it is damaged by its accountants because they failed to stop it."
The shareholders' charges, filed in the name of Leslie Fay, are the latest salvo in a legal tussle pitting the senior management of the dress and suit maker on one side and BDO Seidman on the other. In a separate suit filed March 29, BDO charged that Leslie Fay senior management, including John J. Pomerantz, chairman and chief executive officer, knew of the fraud. The shareholder suit claims neither senior management nor the board of directors had any knowledge of the accounting scam.
The suit seeks unspecified damages. The shareholder group has stated that any claims against BDO "may be the equity holders' only source of recovery in this Chapter 11 case." --Fairchild News Service

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