POLISHAN GUILTY ON 18 OF 21 COUNTS
Byline: Eric Wilson / Jennifer Weitzman
NEW YORK — Former Leslie Fay chief financial officer Paul Polishan was convicted on Wednesday of orchestrating an elaborate financial fraud that overwhelmed the company in the early Nineties and forced it into bankruptcy protection in 1993.
In a dramatic end to one of the most publicized cases of “cooking the books” that the apparel industry has ever seen, U.S. District Judge Thomas I. Vanaskie found Polishan guilty of 18 of the 21 charges lodged against him, including the most substantial count of bank fraud, which alone carries a maximum sentence of 30 years. Polishan was cleared of two charges concerning wire communications from June 1992, while the remaining charge should be determined at Polishan’s sentencing, scheduled for Oct. 23, the judge said.
Vanaskie read off his verdicts in front of a packed courtroom Wednesday afternoon in Scranton, Pa., where the nonjury case of U.S. v. Paul Polishan had lasted 36 days over the course of four months, drawing dozens of former Leslie Fay employees to both the stand and the audience.
“Paul was shocked,” said Dennis S. Neier, a partner in litigation consulting and support services at Goldstein Golub Kessler LLP, who was part of the defense team.
“He walked in the courtroom this morning feeling confident,” he said.
Michael Berger, Polishan’s lead defense attorney, added, “Obviously, Mr. Polishan, his family and counsel are deeply disappointed, and we think the judgment should have been not guilty. He was surprised because he didn’t think the government established its case, and Mr. Polishan felt he established his innocence.”
Berger said Polishan plans to appeal the verdicts.
During the course of the trial, prosecutors said Leslie Fay was “fertile ground for fraud” because of Polishan’s control over financial statements and his subordinates, noting the Hanover, Pa., facility that Polishan ran was geographically separate from the company’s headquarters. His management style was dissected by numerous former divisional controllers, who testified Polishan directed them to make unsupported entries in the company’s books and records.
David Barasch, U.S. attorney for the Middle District of Pennsylvania, said he was pleased with the ruling and added that it will likely result in a substantial prison term for Polishan. The only other Leslie Fay employee to have been indicted in the case was former controller Donald Kenia, who pleaded guilty in 1994 to filing false information with the Securities and Exchange Commission in exchange for his testimony against Polishan.
“Needless to say, we’re thrilled,” said Barasch.
Assistant U.S. Attorney Bruce Brandler, who has handled the case since financial irregularities first surfaced at Leslie Fay, was unavailable to comment on Wednesday. Brandler and Lorna Graham, also an assistant U.S. attorney, handled most of the prosecution in the case, painting Polishan as a micromanager interested in the tiniest of details throughout the company — even taking on matters like a moldy refrigerator and a messy women’s restroom — and therefore could not have been oblivious to the $130 million fraud that took place there, as the defendant alleged.
“This has been a seven-year odyssey for this office, and Mr. Brandler has done a fantastic job in staying with this,” Barasch said. “Normally, cases of this variety are tried by the Southern District of New York, and our office is a fraction of that size. This is a tremendous accomplishment.”
Barasch would not comment on the potential sentence Polishan could face, citing local laws that prohibit the prosecution from discussing those elements prior to filing a presentencing motion with the court. However, in addition to the maximum penalty of up to 30 years in prison that the bank charge alone carries, other felonies, ranging from wire fraud to forfeiture to conspiracy, each carry penalties of five years in prison.
“In my view, the most compelling point that we tried to make here was that Mr. Polishan is the only individual that stood to financially benefit from the manipulation of the books that we accused him of,” Barasch said.
“The other thing that was pretty compelling was a lot of evidence in the case showed his exceptionally strong management style, such that he had knowledge of truly minor details going on in the company, yet his defense was that he was too busy to notice what was going on,” Barasch said. “That was a contrast that was telling.”
Barasch also praised Brandler’s persistence in holding Polishan accountable for the fraud, noting the prosecution spent seven years in pursuit of this outcome.
“So we had a couple of charges that didn’t hold up,” he said. “I don’t think any of us will lose any sleep over it.”