Penguin claims former US manager embezzled $1.4m

Four months after the discovery of an unauthorised discounts scheme that forced Penguin USA, a subsidiary of Pearson, to write off $165m (pounds 100m), the publisher is claiming a former executive was involved in an elaborate embezzlement scam.

In a lawsuit filed in a New Jersey court, Penguin has alleged that its former accounts manager, Christina Galantro, skimmed $1.4m to fund an lifestyle of luxury winter cruises and DIY shopping sprees.

"We have compiled a compelling body of evidence that there was a deliberate conspiracy," said Michael Lynton, the chief executive of Penguin. "Our investigation to date indicates that Mrs Galantro acted without the knowledge, direction or authorisation of her superiors."

As it is painted in the suit, the conspiracy was allegedly the seed that led to the much larger scheme whereby Mrs Galantro gave secret discounts to favoured booksellers. It was those discounts, which were not entered into the books, that created the $165m black hole on the company accounts.

By accessing records of her corporate American Express card, Penguin said it had traced some 900 transactions that it believed were funded by Mrs Galantro's ill-gotten wealth.

The company claims that Mrs Galantro treated herself to items ranging from a $100 honey-baked ham to a $12,000 cruise voyage. She allegedly spent thousands on Louis Vuitton leather goods, on diamonds and on shopping expeditions to Home Depot and Builders Square, two DIY superstores.

Also named in the lawsuit are Mrs Galantro's husband, Stanley, and Jerome Bedell, the head of a collection agency that served Penguin USA. While on one winter cruise, Ms Galantro allegedly went so far as to fax instructions to her co-conspirators to ensure the smooth-running of their scam.

Mrs Galantro's lawyer, Cris Franzblau, suggested that Penguin is "looking for a scapegoat" to duck its responsibilities for the discounts debacle.

In 1995, Penguin was among publishers in the US that signed an agreement not to offer secret discounts to retailers. The deal was to protect small retailers from discount schemes aimed at the larger bookstore chains.

Penguin asserts that Mrs Galantro traded the discounts for early payments from book retailers and that those payments were used to disguise her embezzlements. According to the suit, most of the embezzled money came from cheques from retailers that should have been paid to Penguin but which were instead diverted to Mr Bedell at the collection agency.

The unauthorised discounts, the lawsuit asserts, "were used in part to hide Galantro's thefts".

Mr Bedell, an employee at the Associated Companies collection agency, agreed at the weekend to assist in Penguin's suit and has said he will repay at least $1m.

An investigation into what happened is being pursued by the American Booksellers' Association. Regardless of what motives Mrs Galantro may have had, there is still puzzlement over how she managed to offer the discounts without either Penguin or the publisher's main auditors, Arthur Anderson, apparently being aware of them.