Legal investigations and inquiries have prevented the auditor for Lines Overseas Management from forming an opinion on the company?s 2003 financial figures.

In a July 13 letter to LOM shareholders, PricewaterhouseCoopers said that while it conducted the audit of LOM?s financial statements in accordance with generally accepted standards, it had been informed of ?certain regulatory investigations and enquiries? from which the company may ?become liable to monetary fines or other regulatory action?.

PWC wrote: ?The Company?s (LOM?s) legal counsel has advised that full access by us to all information would constitute a waiver of attorney/client privilege and such a waiver is not in the Company?s best interests. Because of this we have been unable to obtain sufficient appropriate audit evidence to form an opinion with respect to the possible impact of any such matters on the consolidated financial statements.?

?In view of the possible material effects of the matters to the financial statements, and our inability to form an opinion with respect to their effect thereon, we are unable to express an opinion whether these financial statements present fairly the financial position of the Company as at December 31, 2003 and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in Bermuda and Canada.?

Editor of Offshore Alert David Marchant first broke the story about the auditors? report last week.

He has also been following investigations of LOM being conducted by the US Securities Exchange Commission and by Deloitte & Touche on behalf of the Bermuda Monetary Authority . Both bodies are investigating LOM with respect to the trading in securities issued by Sedona Software Solutions Inc. of Vancouver, Canada and its subsidiary Renaissance Mining Corp as well as SHEP Technologies Inc. also of Vancouver and Hi Energy Technologies of Irvine, California.

According to Mr. Marchant, the BMA has also supported the SEC in opposing LOM?s application to the US District Court of Columbia for permission to file evidence under seal.

Mr. Marchant told yesterday: ?Clearly, these regulatory actions in Bermuda and the US and British Columbia have serious implications for the LOM group. The worst case scenario is that the group loses its three licences in Bermuda and is effectively outlawed from doing business in British Columbia and the US.

?The best case scenario is that they are successful in defending these various actions but even that scenario has a downside in that the negative publicity generated by the very bringing of the action is troublesome for the group and the seriousness of these actions is spelled out clearly in the 2003 financials.?

In his lengthy story published in the Offshore Alert newsletter, Mr. Marchant wrote that Lines Overseas Management ?is refusing to provide information about allegedly illegal trading activities to its own auditor, as well as the Bermuda Monetary Authority and the SEC in the United States?.

Scott Hill, executive vice president group compliance for Lines Overseas Management, yesterday said in an e-mailed response to the story that this statement is incorrect and misleading.

?LOM (Holdings) Limited (?LOM Holdings?) and Lines Overseas Management Limited (?LOM Limited?) provided all information and documents requested by PricewaterhouseCoopers during their 2003 audit. In addition, PricewaterhouseCoopers spoke at length with LOM Holdings? legal counsel. LOM Holdings? counsel did not, however, speak to PWC regarding limited matters that were protected by the attorney-client privilege. The attorney-client privilege is designed to promote full and complete communication between counsel and client, thereby advancing broader public interests in the observance of law and the administration of justice. A key element of the attorney-client privilege is that the client?s communications to the attorney will be kept confidential. Disclosure of such communications often results in the general waiver of that privilege, such that the disclosed attorney-client communications are entitled to no protection in any context. Accordingly, LOM Holdings? management determined, in consultation with the Audit Committee of the company?s Board of Directors, that such disclosure would not be in the best interests of LOM Holdings? shareholders and it declined to waive the attorney-client privilege with regard to the company?s privileged communications with its counsel.?

Mr. Hill went on to say that LOM Limited and LOM Securities (Bermuda) Limited have fully complied with all Bermuda Monetary Authority information requests to date.

He wrote: ?LOM Limited and its affiliates have voluntarily provided the SEC with a significant amount of information and documents. In addition, they presume that the BMA has provided the SEC with all the information that the BMA has obtained from LOM Limited and its affiliates.?

Mr. Hill wrote that LOM Limited has advised the SEC to seek any additional information it wants through intergovernmental requests to the appropriate regulators in Bermuda, the Bahamas, and the Cayman Islands. He wrote: ?The SEC?s own official policies state that it will cooperate with its foreign counterparts in seeking solutions to the challenges of international securities regulation. In fact, the SEC has expressly acknowledged that it must be ?sensitive to cultural differences and national sovereignty concerns? and ?mindful and respectful of existing national regulatory frameworks?.?

Mr. Hill says that the SEC has provided LOM Limited with no explanation for its decision to disregard its own long-standing policies in this matter. LOM Limited has raised these matters to the United States court that is presiding over the SEC?s subpoena enforcement action, and it anticipates that the Court will appropriately resolve these matters.