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Shareholders of Delphi are trying to push ahead with a lawsuit against the bankrupt US car parts maker and some of its former directors, auditors and bankers, by asking the bankruptcy judge to suspend automatic Chapter 11 protections and allow documents to be recovered.
The complex case, led by two US state pension funds and two large European funds, alleges the company boosted profits through phony sale and repurchase deals, that it wrongly classified costs and income to boost profits and manipulated reserves.
The “disguised” loans are alleged to involve Bank One, since bought by JPMorgan Chase; Setech, a Tennessee logistics company; and BBK, a Michigan turnround specialist.
Under bankruptcy law, cases against Delphi have been automatically stayed until the company emerges from Chapter 11 protection, unlikely to be before 2007 at the earliest.
Lawyers acting for the pension funds have requested an exemption from this automatic protection to allow them to recover copies of documents and computer files.
They want copies of everything provided to the Securities and Exchange Commission, the senior US financial regulator, which is investigating the company.
The FBI is also carrying out a criminal investigation into the alleged transactions.
“There can be no serious dispute that there was an accounting fraud at Delphi,” said Sean Coffey, partner at Bernstein Litowitz Berger and Grossmann, the law firm leading the lawsuit.
Delphi has already warned investors not to rely on its accounts since 2001.
Alan Dawes, chief financial officer, resigned after the company’s audit committee expressed a “loss of confidence” in him, while Paul Free, chief accountant, was fired.
JT Battenberg, chairman and chief executive, retired shortly before the audit committee’s actions. Mr Battenberg, Mr Dawes and Mr Free are among the former Delphi officers and directors named in the lawsuit.
A hearing on the continuing lawsuit this week is due to decide whether it should be heard in New York or Detroit. Delphi’s bankruptcy judge will decide whether to order the company to release the documents next week.
Delphi declined to comment on the request for documents.
In a separate development, Wilbur Ross, the billionaire investor, has made his first formal move on Delphi by asking the bankruptcy court to keep him informed of progress in dealing with Delphi.
Mr Ross has previously expressed interest in buying parts of Delphi.
Delphi declined to comment on the timing of any sale, saying it continually evaluated whether to sell businesses.