Lawsuit Brought Against Delphi - aftermarketNews

Lawsuit Brought Against Delphi

A lawsuit filed by several institutional investors alleges that fraud committed by Delphi Corp. and other companies was "among the most egregious in the recent wave of corporate meltdowns."

From Detroit Free Press

TROY, MI — A lawsuit filed by several institutional investors alleges that fraud committed by Delphi Corp. and other companies was “among the most egregious in the recent wave of corporate meltdowns.”

Delphi does not comment on pending litigation, company spokesman David G. Bodkin said.

Among other things, the suit charges that Delphi lied about its business to “hide systemic and growing problems, and enrich management.” Misdeeds include fake sales in which other companies bought useless parts from Delphi and sold them back to the supplier once Delphi had claimed the sale as a profitable transaction on its financial reports, the suit charges.

Bank One Corp. and software provider Setech Inc. were among the firms that participated in that scheme, the suit filed in U.S. District Court in New York says. The suit names many individuals, including former Delphi chairman J.T. Battenberg III.

“The suit is without merit, and we’re confident in the integrity of our business practices,” said Richard Eddinger, Setech’s chief financial officer. “We’ll defend the suit vigorously.”

The suit claims that Deloitte & Touche, Delphi’s outside auditing firm, “recklessly certified” that the company’s financial statements complied with auditing standards. Deloitte spokeswoman Deborah Harrington declined to comment.

JP Morgan, which bought Bank One Corp. in 2004, had no comment.

The Securities and Exchange Commission also has been investigating Delphi, which admitted earlier this year that all its financial reports for the last three years were incorrect.

The suit also says Delphi claimed that some money came from sales when it was actually from loans, another tactic to hide the company’s problems.

Delphi is considering filing for bankruptcy and working to renegotiate contracts with GM and the UAW to become profitable. The supplier lost $741 million in the first half of this year. Investors rely on the accuracy of companies’ financial reports, said William Volz, law professor in the business school at Wayne State University. “They may feel they wouldn’t have invested if they’d known the truth,” he said. “When an enterprise’s financial statements are sullied, it’s not a stain that goes away quickly.”

“There was a very troubling way of doing business at Delphi,” said Sean Coffey of the New York law firm Bernstein Litowitz Berger and Grossmann, which represents the Public Employees’ Retirement System of Mississippi, one of four lead plaintiffs. “Every financial statement the company put out appeared to be fictitious.”

Bloomberg contributed to this report.

Copyright 2005 AFX News Limited. All Rights Reserved.

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