SEC talks tough to Belgian voice recognition company

September has been painful for voice recognition technology provider Lernout & Hauspie. The Belgian company has become the target of an intense SEC investigation over questionable accounting practices, while founder and CEO Gaston Bastiens has stepped down in the wake of rumors about problems with the firm’s finances.

The swirling controversy also helped contribute to a sharp drop in stock prices, from $65 in March to about $14 in early October. Now the company says third-quarter revenue will fall short of analyst expectations. Although company revenue increased over the second quarter, L&H expects to post a net loss on 3Q revenue of $165 million to $185 million.

In addition, Boston law firm Berman DeValerio & Pease is assembling a class action lawsuit against the company on behalf of investors who bought L&H stock between Dec. 28, 1999, and Aug. 7, 2000. The firm plans to file a lead plaintiff motion on Oct. 10.

The SEC will focus on L&H’s business dealings in Korea and Singapore, where revenue seemed to be strong but may turn out to be part of a complicated bundle of investments connected to the FLV Fund. The fund is a Belgian venture capital company linked to L&H founders Jo Lernout and Pol Hauspie.

John Duerden, formerly general manager of L&H Healthcare Solutions Group, has taken over Bastien’s CEO position at L&H and has pledged to make the company’s finances “transparent.”

“I am dedicated to full cooperation with the SEC and the audit committee, and to bringing strong leadership to the next stage of development of this exciting company,” he said at a press conference. “We look forward to working with the SEC and our auditors to ensure full compliance with all U.S. laws and regulations.”

The lower-than-expected revenue may have been due in part to worries about the company’s tangled finances. Or, as Duerden noted, “The most recent distractions, including management changes, coupled with the major task of integrating several large companies, have impacted our sales momentum.”

Despite these problems, L&H remains one of the leading vendors of voice recognition technology for medical use. PowerScribe is one of the top two voice recognition products for radiology. L&H also produces Clinical Reporter for pathology and emergency medicine reports and Voice Xpress for Medicine—a general purpose medical voice recognition package designed to work with Microsoft Windows applications. It recently released a package for use with mobile communications technology.

Last spring, L&H made two acquisitions that should help propel the company into the major leagues in the electronic medical transcription and related markets when it purchased Dictaphone and Dragon Systems, a voice recognition developer.

L&H had purchased medical transcription firm Omni-Med Transcription in January. These acquisitions offer the possibility of making voice recognition a standard integrated feature of hospital and clinical information systems.

L&H also is helping to turn Ieper (Ypres), Belgium, into a center for voice recognition technology research. Several smaller companies specializing in similar applications have moved into the area.