FLV maps out its future

The beleaguered fund plans to cease all activities in December 2004 but in the meantime has law suits, restructurings and attempted exits to sort out.

FLV Fund, the VC fund specialising in investing in the speech, artificial intelligence and language (S.AI.L) sub-sectors of IT, announced today its plans to wind up the fund by 31 December 2004.

FLV has been in the news ever since it transpired that US$30m it had contributed to setting up FLV Fund Korea had been seized by Korean Bank Hanvit Bank which claimed it as security against a loan it had made to personnel connected with the new fund. FLV has consistently claimed this was part of a plot to embezzle the money and today reaffirmed that it was taking legal action against Hanvit and against key local partner John Seo and the original directors of FLV Fund Korea.

A key relationship in all of this has been FLV's close ties with speech recognition software company Lernout & Hauspie which filed for creditor protection in December 2000. This firm had been instrumental in developing the idea of the Korea Fund and John Seo was the former head of Lernout & Hauspie's Korean operations.

Lernout & Hauspie had also received significant investment from FLV for various US affiliated operations that soon went out of business. FLV today confirmed that it was 'retaining legal counsel in the US for representation of the company in class action securities litigation regarding Lernout & Hauspie in the US.'

FLV also fell out with its auditors, KPMG, who refused to sanction the fund's financial statements as well as rebutting claims made by FLV about its failure to properly police the establishment of the Korean fund.

The subsequent drop in technology company valuations, the closure of the IPO exit route and the ongoing malaise in world equity markets has made life all the more difficult for FLV. In today's statement FLV Management, which runs the FLV Fund, released a checklist of action points it is to undertake as it closes the Fund down.

These steps include making no investment in new ventures and instead making only defensive follow-on investments. The fund also hopes to make a 'gradual and orderly realization [of] portfolio companies' and to therefore focus on active existing portfolio companies whilst 'monitoring written off assets for possible recovery'.

FLV is also undertaking a restructuring of FLV Management so that recurring annual
operating costs will be a maximum of E3m. This will see an incentive and redundancy plan put in place for FLV Management's reamining staff. The Fund noted today that former CEO Philip Vermeulen and Filip Vandamme, former CEO of FLV Asia Pacific Ltd had already left the company.

The Fund has set a target date for ending all activity of 31 December, 2004 and it is already looking to refund investors via a decrease in fund capital. The aim is to deliver E1.36 [$1.25] per share back to investors as soon as possible.

All of these measures are to be discussed and their approval requested at a special meeting of FLV Fund shareholders on 26 October 2000.

In a related announcement today, FLV Fund confirmed that it was being reprimanded and fined by NASDAQ but in accepting these measures the trade halt that had been called on its shares was to be lifted on 5 October. The total cost to FLV of this process was estimated to be E15,000. In its statement, FLV said: 'it is to the benefit of FLV Fund and the holders of its financial instruments to obtain the lifting of the trade halt and to avoid lengthy disciplinary proceedings, involving substantial costs, management time and the continuation of the trade halt.'