PROSECUTORS IN POLISHAN CASE PROBE ’91-’92 PROFIT ALLOWANCES
Byline: Kate Fleisher
SCRANTON, Pa. — U.S. prosecutors in the fraud trial of Paul Polishan, the former Leslie Fay chief financial officer, dug deep on Wednesday into the recording of 1991-92 reserves, or profit allowances to key stores, during testimony by two witnesses — John Ward, president of The Leslie Fay Co., and former corporate senior vice president Laura Pomerantz.
Prosecutors also concentrated on advanced billing during that same two-year period, when orders shipped were credited to prior months.
Assistant U.S. Attorney Bruce Brandler posed a number of scenarios about numbers he alleged were suspect. Brandler attempted to define the defendant’s sometimes abrasive personality, demanding work style and attention to minute details — frequently in areas he suggested were on the fringes of chief financial officer’s responsibilities.
Polishan is on trial in federal court on 21 charges of alleged conspiracy to inflate the apparel maker’s earnings by $81 million from 1990 to 1992. Conviction on all counts could bring a sentence of more than 30 years in prison.
Hearing the case is U.S. District Judge Thomas I Vanaskie, who asked a few questions of his own, such as the difference between physical and perpetual inventory as practiced in apparel manufacturing. Running though a series of company memos, Brandler focused on Polishan’s insistence on meeting and increasing sales budgets, often to the point of telling division vice presidents how many orders to ship.
Responding to objections by Polishan’s defense attorney, Michael G. Berger, Brandler rephrased his question, asking, “Does the chief financial officer tell the chairman of the sportswear group what he has to ship?”
Ward, former head of the sportswear group, answered, “Now? No.”
During cross-examination of Ward, Berger tried to describe Polishan’s attention to orders as concern over production problems, a point with which Ward often agreed.
Berger asked Ward questions seeking to show there were production problems that would require Polishan’s close attention.
“And there were memos from Mr. Polishan on shipping difficulties?” Berger asked.
“Yes,” Ward said. “If product was not there by a given date, the customer could cancel the order.”
Ward was surprised to learn that an audit report showed that 53 to 82 percent were shipped beyond the time policy. He said he wouldn’t know whether anything was done to falsify shipping and billing dates.
During Pomerantz’s testimony, she said she discovered that in 1992 the 15 percent of budgetary reserves she had on some of her accounts were not recorded on the books. These were amounts set aside for certain key accounts as allowances against profit guarantees.
In a memo dated Jan. 22, 1992, Pomerantz asked that the reserves be reinstated in her divisional budget. She said she then tried to call Polishan, who was not available. She instead spoke with Bill Perkoski, who worked with Polishan, and asked why the reserves had not been accounted for.
“There was dead silence, and I asked what happened to them. He said, ‘Paul needed them.”‘
“These allowances,” she said, “are going to materialize and I want them reinstated.”
The prosecution then asked about a follow-up memo written on May 1, 1992, from Pomerantz to Polishan, that read, “We have had this discussion before and we are now having it again, but I would appreciate it if we would never have it again,” in regard to the reserves agreements with Dillard’s, Macy’s, Hecht’s and Lord & Taylor.
Pomerantz said Polishan later replied that he felt bad and would reinstate the reserve.