Byline: Eric Wilson

SCRANTON, Pa. — John Dillon, another of Leslie Fay’s divisional controllers in its Hanover, Pa., facility when a series of financial irregularities took place there in the early Nineties, testified on Tuesday he had been directed by his bosses to manipulate journal entries, leading to inflated profit statements by the company in its filings to the Securities and Exchange Commission.
Dillon was the second former Leslie Fay employee to implicate Paul Polishan this week as directing a scheme to “cook the books” in the former chief financial officer’s ongoing fraud trial in U.S. District Court here.
The trial, which began March 1 and had originally been scheduled to last three weeks, was recessed on Tuesday and will resume on May 15. It is likely to stretch into June.
Polishan’s defense attorneys questioned Dillon’s motivation in naming his former boss, implying it was as retaliation for low raises, transfers to other Leslie Fay facilities and Polishan’s tough work ethic.
Dillon was employed by Leslie Fay from 1984 until 1993, leaving the firm shortly after the accounting scandal came to light and forced the company to file for Chapter 11 bankruptcy protection that year.
His last position was as a division controller for the Andrea Gayle, Joan Leslie and Leslie Fay Evenings dress divisions, reporting to Polishan and Don Kenia, the former corporate controller who pleaded guilty in 1994 to filing false information with the SEC.
In describing Polishan’s manner during his employment, Dillon said that when he began working at Leslie Fay, “I asked for suggested reading, and the only thing he recommended was ‘Mein Kampf,”‘ referring to Adolph Hitler’s manifesto.
Timothy Polishan, a defense lawyer and the defendant’s son, later asked Dillon if he had reported that incident to personnel or looked for another job, to which Dillon said, “No.” Polishan’s character has played a major role in the trial; he has been portrayed by prosecutors as using intimidation to make subordinates follow orders. But at the crux of the charges is whether Polishan directed the scheme to inflate profits.
Under immunity, Dillon testified he had been ordered by Kenia and Polishan to make unsupported journal entries and that he had obtained documents with Polishan’s handwritten adjustments indicating the changes were being orchestrated by the cfo.
In a Dec. 28, 1992, memo, Dillon wrote to Polishan requesting adjustments to his divisions’ reserves to accommodate losses from markdowns and a fabric order commitment that had been canceled, both of which would have negatively impacted the bottom line for the month. Polishan refused, Dillon said, “and because we did not increase reserves and properly record the fabric purchase, the December 1992 income statement was overinflated.”
On a 1992 fourth-quarter projection statement for the company, Dillon also testified changes were made in Polishan’s and Kenia’s handwriting decreasing the net loss for each of his three divisions from a total of $1.13 million to $740,000, for which Dillon said there was no legitimate reason.
During the cross-examination, Dillon said that in the days after the scandal broke, he met with other divisional controllers to discuss whether they should hire legal representation and if they should do so as a group. Dillon said at the time he felt that Polishan was involved in the scheme and that he felt the other controllers were similarly inclined, although he said the group did not discuss the cfo’s involvement.