NEW YORK--The first criminal charges in the Leslie Fay accounting scandal were leveled Tuesday.
Donald F. Kenia, the former corporate controller for The Leslie Fay Cos., was charged by federal authorities with two counts of causing false statements to be filed with the Securities & Exchange Commission.
Kenia, who faces up to 10 years in prison and fines totaling $500,000, sidestepped a possible federal
indictment by indicating in a plea agreement that he intends to plead guilty when arraigned and by offering his cooperation. He has yet to officially enter a plea.
Authorities said Kenia is cooperating in their continuing investigation of the apparel maker's accounting scandal.
The charges, filed by the Scranton, Pa., U.S. Attorney's Office, allege that Kenia "made or directed others to make adjustments to the financial statements that grossly inflated Leslie Fay's earnings during 1990 and 1991" and converted 1992's losses into gains in profits.
Neither Kenia nor federal prosecutors could be reached for comment Tuesday.
After Leslie Fay revealed the nature of the scandal in February 1993, the company was forced to restate its earnings for the three years in question--1990, 1991 and 1992--and was plunged into Chapter 11 in April 1993.
The targets of the continuing grand jury probe are not known.
Leslie Fay's internal investigation and a later report by a court-appointed examiner pointed fingers at Kenia and Paul F. Polishan, Leslie Fay's former chief financial officer and Kenia's boss. After disclosure of the scandal, Kenia and Polishan were dismissed by the company.
That same investigation cleared other Leslie Fay executives--including John J. Pomerantz, Leslie Fay's chairman and chief executive officer--of any wrongdoing. Pomerantz, however, was relieved of his financial responsibilities.
Michael Berger, Polishan's attorney, declined to say if his client is part of the government's ongoing investigation. Berger noted that the "claims against Polishan are more vague and presumptive" than the accusations that Kenia faced and added that he did not believe the Kenia case would have any bearing on his client.
According to the information from federal authorities that was made public Tuesday, the overstatement of Leslie Fay earnings during the three years came to $119.2 million. The company in its restated profit and loss reports put the overstatement at $81 million. A company spokesman said the discrepancy apparently reflected the inclusion of special charges for restructuring. The spokesman declined to comment further on the government's charges against Kenia.
--Fairchild News Service

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