Lawsuit claims fraud at LeNature's ignored

| Thursday, Sept. 10, 2009

A bankruptcy trustee charged with liquidating defunct LeNature's Inc. in Latrobe filed a lawsuit Wednesday against Pittsburgh's largest law firm and a certified public accountant alleging they failed to uncover evidence of "massive fraud" despite being presented with evidence to the contrary.

Trustee Marc Kirschner of New York filed the lawsuit in Allegheny County charging that K&L Gates,senior partner Sanford Ferguson and the accounting firm of Pascarella & Wiker of Wexford with malpractice, negligence, breach fiduciary duty and negligent misrepresentation in connection with a 2003 internal investigation of LeNature's executives and its finances.

Spokesmen for K&L Gates, headquartered Downtown, and Pascarella & Wiker could not be reached.

Kirschner called their investigation a "stunning failure" after they failed to uncover corporate wrongdoing by former CEO Gregory Podlucky of Ligonier and other LeNature's officers despite warnings by the company's former chief financial officer, John Higbee.

Kirschner accused the defendants of failing "to conduct an even minimum investigation" into the allegations that led to the financial collapse of LeNature's in 2006 and a federal criminal investigation into allegations of money laundering and bank, wire and mail fraud, according to federal court records.

K&L Gates and Pascarella & Wiker were hired by LeNature's board of directors after Higbee, Jennifer Fabry, the former chief administrative officer and Stacy Juchno, the vice president of administration, resigned after Podlucky refused them access to key financial records, according to the lawsuit.

An internal investigation was conducted, but Podlucky thwarted the probe by withholding access to certain records, preventing interviews with key personnel and refusing to allow follow-up interviews with other employees.

Even so, K&L Gates issued a report concluding they found "no evidence of fraud or malfeasance," according to the lawsuit, "despite a number of red flags," Kirschner says.

Higbee told members of the board of directors that he suspected Podlucky had provided accountants with false financial information that inflated the true amount of sales being done by LeNature's. Higbee also raised questions about the accuracy of sales records, equipment deposits, a lack of documentation and "millions of dollars in discrepencies," according to the lawsuit.

Kirschner said K&L Gates and the accountants readily accepted Podlucky's explanations without question.

LeNature's was forced into bankruptcy in November 2006. After another bankruptcy trustee took control of the firm, he discovered that Podlucky had kept two sets of financial records. One set of records reflected sales in the hundreds of millions of dollars when the actual amount of business done by the company in one particular year was only $32 million.

Court records indicate the size of the alleged fraud is between $800 million and $1 billion.

Since Kirschner took over, he has filed a number of lawsuits against other accounting firms, investment houses and banks seeking to recover millions of dollars for creditors. The U.S. Attorney's Office in Pittsburgh, the IRS and postal inspectors are continuing their criminal investigation.

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