Levi Strauss has shifted production abroad to cut costs

Two ex-employees of Levi Strauss are suing the clothing firm, alleging they were sacked for refusing to cover up fraudulent accounting practices at the jeans maker.

The suit was filed by tax lawyer Richard Schmidt and accountant Thomas Walsh in the San Francisco Superior Court.

Levi Strauss has denied their allegations.

Corporate America has been rocked by a series of scandals in the last 18 months as false accounting triggered the collapse of some its most revered names, including Enron and Worldcom.

'False claims'

Levi Strauss chief executive Phil Marineau said the two were "dismissed late last year for reasons completely unrelated to the allegations made in their lawsuit".

"Unfortunately they have chosen to respond to their dismissal by making false claims in litigation," he said.

The lawsuit says Levi Strauss artificially inflated its earnings to deceive shareholders about the success of its restructuring.

"From 1995 through 2002 its market share, revenue and profitability has continued to decline," the lawsuit says.

"During this period, Levis Strauss engaged on a number of steps to create the illusion to the investing public that it was engaged in a successful turnaround," it adds.

Restructuring

It also claims the jeans maker maintained a tax haven in Brazil where it invested $100,000 in order to claim $149m in tax rebates.

Levi Strauss decided to cut its workforce by 20%, or 3,300 jobs, in 2002 and to close six factories in the US.

The clothing maker said it could not remain competitive unless it switched manufacturing abroad and outsourced production.

Levi Strauss was previously audited by Arthur Andersen, the accountancy firm at the centre of the Enron scandal.

Walsh and Schmidt say they refused to conceal false accounting practices from the US tax inspectors and the firm's newly appointed auditor, KPMG.