THE LESLIE FAY COMPANIES
Fred Pomerantz founded Leslie Fay in the mid-1940s and built the company into one of
the leading firms in the highly competitive women’s apparel industry over the next four decades.
Fred’s son, John, took over the company in 1982 after his father’s death.
Over the next ten
years, the younger Pomerantz added to his father’s legacy by maintaining Leslie Fay’s
prominent position in its industry.
In January 1993, John Pomerantz’s world was rocked when
his company’s CFO, Paul Polishan, told him of a large accounting fraud that had inflated Leslie
Fay’s operating results during the previous few years.
Polishan had learned of the fraud from
his top subordinate, Donald Kenia, Leslie Fay’s controller.
Kenia revealed the fraud to Polishan
and, at the same time, reportedly confessed that he was the mastermind behind the fraud.
Public disclosure of the large-scale fraud sent Leslie Fay’s stock price into a tailspin and
prompted the press to allege that Pomerantz and Polishan must have either participated in the
various accounting scams or, at a minimum, been aware of them.
Within a few months, Leslie
Fay was forced to file for protection from its creditors in federal bankruptcy court.
meantime, investigations by law enforcement authorities corroborated Pomerantz’s repeated
denials that he was involved in, or aware of, the fraud.
However, those same investigations
implicated Polishan in the fraud.
Another party tainted by the investigations was Leslie Fay’s
former audit firm, BDO Seidman.
One investigative report noted that negligence on the part of
the accounting firm had likely prevented it from uncovering the fraud.
In July 1997, BDO Seidman contributed $8 million to a settlement pool to resolve
several lawsuits stemming from the Leslie Fay fraud.
In the summer of 2000, federal
prosecutors obtained an eighteen-count felony conviction against Paul Polishan. The key witness
who sealed Polishan’s fate was his former subordinate, Donald Kenia.
During the contentious
criminal trial, Kenia admitted that Polishan was the true architect of the Leslie Fay fraud.
had initially accepted responsibility for the fraud only after being coerced to do so by Polishan.
In early 2002, Polishan began serving a nine-year sentence in a federal prison.
Kenia received a
two-year sentence for helping his superior perpetrate and conceal the fraud.
Leslie Fay emerged
from bankruptcy court in 1997 but was bought out by another firm in 2001.
The Leslie Fay Companies--Key Facts