Lawsuit says Delphi faked sales to improve financial reports

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Imagine that - Fraud... From the FREEP

Lawsuit says Delphi faked sales to improve financial reports

Wednesday, October 5, 2005

BY MARK PHELAN
FREE PRESS BUSINESS WRITER

Fraud committed by Delphi Corp. was “among the most egregious in the recent wave of corporate meltdowns,” according to a suit several institutional investors have filed against the Troy-based supplier.

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.”

Those lies included fake sales in which other companies bought useless parts from Delphi, and sold them back to the supplier once Delphi had claimed the sales as profitable business on its financial reports. After General Motors Corp. spun Delphi off as a separate company in 1999, the supplier “was determined to show it could survive as a stand-alone business,” and engaged in a series of improper transactions to hide the company’s financial distress.

Delphi is considering filing for bankruptcy and working to renegotiate contracts with GM and the United Auto Workers union to become profitable. The supplier lost $741 million in the first half of this year.

“This is one of the larger frauds in recent memory” 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 the four lead plaintiffs.

“There was a very troubling way of doing business at Delphi,” Coffey said. “Every financial statement the company put out appeared to be fictitious.”

He added that the other companies named in the suit were direct participants in the fraud.

Delphi has two months to answer the complaints in the suit, Coffey said, adding that there is “no hint of when a trial might be.”