Public Pension Funds Sue Delphi Corp

October 5, 2005 ( - Two state pension funds, a pension fund in Europe, and mutual fund company in Europe have filed suit against Delphi Corp. for allegedly using improper accounting moves to overstate profits.

The Wall Street Journal reports that the suit names Delphi and a number of other defendants, including Deloitte & Touche, six former or current Delphi executives, 15 former or current board members, nine investment banks, and three other companies with which Delphi did business.    The suit alleges the other defendants helped Delphi “present the investing public with a materially false and misleading picture of the company’s cash flow, earnings and debt.”

The accounting moves involved selling inventory at the end of a quarter, booking the proceeds as income and cash flow, then reacquiring the inventory after the quarter closed, the suit says, according to WSJ.   The Securities and Exchange Commission (SEC) and the Department of Justice have a current investigation of these allegations underway.

According to the suit, the inventory deals helped Delphi meet or exceed quarterly earnings expectations for the first 19 quarters after the company was spun off from General Motors Corp in 1999.   In addition, WSJ reports, the suit alleges that Delphi’s management encouraged the practice.   According to the suit, a vice president of logistics sent a companywide memo praising the practice and telling managers to visit the plants that sold the inventory to “learn from their methods.”

The lead plaintiff in the suit is the $7 billion public pension fund for Oklahoma school teachers.   Other plaintiffs include the $16 billion Mississippi public employees’ pension fund, Stichting Pensioenfonds ABP, the $178 billion pension fund for 2.2 million government and university workers in the Netherlands, and Raiffeisen Kapitalanlage-Gesellschaft, a mutual-fund firm based in Vienna with $40 billion in assets.

Delphihas acknowledged that it is under federal investigation and has completed its own investigation and restated earnings for 2001 – 2003, WSJ reports.

Another public retirement system, the Detroit Police and Fire Retirement System, filed suit against Delphi earlier this year for failing to disclose the company’s true financial position and making misleading statements about its stock price (See   Detroit Police/Fire Want Lead in Delphi Suit ).