FORMER LESLIE FAY EXEC TESTIFIES UNDER IMMUNITY IN POLISHAN TRIAL
Byline: Kate Fleisher
SCRANTON, Pa. — Testifying under immunity in the fraud trial of former Leslie Fay chief financial officer Paul Polishan on Thursday, a former divisional controller described the defendant’s hand-written changes on financial reports during the months before accounting irregularities surfaced, eventually forcing the company into bankruptcy.
William Perkoski, who joined Leslie Fay in 1989 after an extensive financial career in the apparel industry, testified that changes made to weekly snapshot and monthly flash reports “in most instances” inflated the firm’s bottom line.
Chief judge Thomas Vanaskie asked Perkoski to compare sheet by sheet and column by column the trail of numbers that the prosecution has alleged documents Polishan’s hands-on alterations and involvement throughout the financial reporting process. Financial irregularities forced the company into bankruptcy in 1993 and subjected it to a class-action suit by shareholders.
Perkoski said that he had made changes requested by corporate controller Donald Kenia, but had not alerted Polishan to those changes “because [Polishan] asked me to make changes himself in inventory and allowance reserves.”
Perkoski, who was responsible for five divisions, said Polishan called many, if not most, of his divisional budgets “unacceptable,” often in areas of allowance balances. He cited several examples of Polishan’s hands-on intervention, as well as changes that Kenia had requested, that would alter Leslie Fay’s income statement.
One involved an invoice for a $521,000 advertising campaign created and placed for the firm’s Albert Nipon division. Perkoski testified the invoice should have been expensed in 1992, but instead, at Kenia’s direction, he booked $150,000 as prepaid on the bill and amortized the rest over a couple of years. He altered the invoice, he said, “by blackening the insertion date and whiting out the September 1992 invoice date.”
Asked why the invoice was changed, Perkoski said, “BDO Seidman [Leslie Fay’s external auditing firm] would have seen that the advertising should have been expensed in 1992, not 1993.”
The amortization was reviewed by Kenia and Polishan before going to BDO as part of its auditing function, Perkoski said.
Assistant U.S. Attorney Lorna Graham also had the witness identify a memo of Oct. 16, 1992, from Polishan to Leslie Fay president Alan Golub about the ad campaign. Attached was a check Golub was to sign for $521,000.
Perkoski said he reviewed Polishan’s questions on the memo with him. He testified that Polishan told him, “If the auditors ask, only give them the sales projections.” Perkoski said the defendant didn’t want to see an operational loss because the auditors might want to set up some kind of reserves.
During cross-examination, defense attorney Timothy Polishan, who is the defendant’s son, attempted to distinguish between an alteration to a journal record to which Perkoski has admitted having made himself and other changes alleged to have been made by Polishan to reserves, the advertising campaign and other issues in which the time of booking was at issue.
In questions to Perkoski, Polishan said that the way the advertising booking was handled, as well as aging inventory, reserves and allowance balances, was an issue related to time of booking, unlike the issue of changing a journal entry, which Perkoski has admitted doing.
Perkoski said it was “the improper time to book the data.”
Asked if he was involved in reporting the sale of Leslie Fay’s Head division in 1991, Perkoski said he was told by Kenia to assign $300,350 to one of the lines in Kenia’s division rather than booking those funds to nonrecurring income from the sale.
“Kenia said it was a gift,” Perkoski said.
On the comparison of the snapshots and flash reports, Polishan asked whether in most instances the final figures were lower than the defendant’s estimates, such as maintaining gross profits and gross sales.
Perkoski confirmed they were, but he returned repeatedly to his contention that, “In all cases, my original figures seemed to be influenced by those of the Polishan estimates because what eventually got reported were in most instances more favorable than my workups.”
After Perkoski’s testimony, Vanaskie, who is hearing the case in a nonjury trial, recessed the case for at least a week.