By and  on February 11, 2002

NEW YORK -- Could the apparel industry have an Enron in waiting?

Accounting irregularities in the apparel trade have tended to be less sophisticated than the intricate web of global lending, leasing and laundering alleged to have been practiced by the bankrupt energy giant. but it's had its own peculiar brand of numerical improvisation.

"I don't know about today but the fashion world historically has been known for keeping the books fast and loose," said Michael Young, litigation partner at Willkie Farr & Gallagher and an expert on the issue of financial fraud.

Beyond the standard tricks of the trade, such as two sets of books and distorted valuations of inventory, the industry's publicly held firms have had their share of government investigations, criminal indictments, convictions and eye-catching earnings restatements:

Upscale retailer Barneys New York was under investigation by the Manhattan district attorney's office shortly after it filed its Chapter 11 petition in January 1996. The probe involved financial information that the company provided to investors in a private syndication four months prior to the bankruptcy filing. The financial statements used were later "adjusted" during the pro forma period before the company filed its official yearend results. The D.A. subpoenaed numerous Barneys executives, including those in the accounting department. No charges were ever filed and the company exited bankruptcy proceedings in 1999.

In a $130 million fraud scandal, the former Leslie Fay Co. in 1993 said that it discovered that false accounting entries turned profits into losses in 1991 and 1992, causing restatement of those periods and forcing the company into bankruptcy. Paul F. Polishan, former chief financial officer of Leslie Fay who was convicted in July 2000 of orchestrating the elaborate financial fraud, was sentenced to nine years imprisonment last month. Former controller Donald F. Kenia was sentenced in October 2001 to two years in prison, two years of supervised release and 500 hours of community service.

Maurice "Corky" Newman, former chief executive officer of swimwear manufacturer Sirena Apparel Group Inc., and Richard Gerhardt, former cfo, both pled guilty in April 2001 to securities fraud in a Los Angeles federal court. Accounting fraud was one of the counts against them in an October 2000 indictment for their role in the fraud. The two were charged with falsely inflating Sirena's third-quarter 1999 earnings by 30 percent and tampering with computer clocks in order to hold open the quarter long enough to meet analysts' expectations. The company, which entered bankruptcy in June 1999 and emerged in August 2000, has since sold its trademark to New York-based swimwear manufacturer A.H. Schreiber Co.

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