Tracking the Vultures in...
Sightings from The Catbird Seat
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May 18, 2004
SEC Charges Lucent, Executives
Imposes the largest penalty ever for not
cooperating with an SEC probe.
Stephen Taub, CFO.com
The Securities and Exchange Commission fined Lucent Technologies Inc. $25
million for not cooperating with an investigation of its accounting practices
and charged 10 executives with securities fraud and helping Lucent violate
federal securities laws.
This is the largest penalty imposed on a company for not cooperating with an
"Companies whose actions delay, hinder or undermine SEC investigations will
not succeed," said Paul Berger, associate director of enforcement. "Stiff
sanctions and exposure of their conduct will serve as a reminder to companies
that only genuine cooperation serves the best interests of investors."
The SEC charged Lucent with securities fraud and violations of the reporting,
books and records, and internal control provisions of the federal securities laws.
The commission alleges that Lucent fraudulently and improperly recognized
about $1.148 billion of revenue and $470 million in pre-tax earnings during
The SEC's complaint alleged that to realize revenue, meet internal sales targets,
and obtain sales bonuses, nine current and former Lucent executives — Nina
Aversano, Jay Carter, Leslie Dorn, William Plunkett, John Bratten, Deborah
Harris, Charles Elliott, Vanessa Petrini, and Michelle Hayes-Bullock —
"improperly granted, and/or failed to disclose, various side agreements, credits
and other incentives to induce Lucent's customers to purchase the company's
These extra-contractual commitments were made in at least 10 transactions in
fiscal 2000, alleged the commission. Lucent violated generally accepted
accounting principles by recognizing revenue on these transactions, both in
circumstances where it could not be recognized under GAAP and by recording
the revenue earlier than was permitted, added the commission.
The SEC also asserted that the nine Lucent executives violated and
circumvented Lucent's internal accounting controls, falsified documents, hid side
agreements with customers, failed to inform personnel in Lucent's corporate
finance and accounting structure of the existence of the extra-contractual
commitments or, in some instances, took steps to affirmatively mislead them,
according to the complaint.
The complaint also named former Winstar officer David Ackerman, alleging that
he engaged in a scheme with Plunkett that resulted in Lucent improperly
recording a $125 million software purchase by Winstar at the end of Lucent's
fourth quarter of fiscal 2000. His fraud included signing a document that disguised
the timing of a side agreement in connection with that sale, the SEC charged.
Lucent and three of its former executives agreed to settle the case without
admitting or denying the allegations.
In fining Lucent for failing to cooperate, the SEC accusing the company of
incomplete document production and failing to ensure that a relevant document
was preserved and produced in response to a subpoena. The commission also
asserted that after reaching an agreement in principle with the SEC to settle the
case, Lucent's former chairman/CEO and outside counsel agreed to an interview
with Fortune magazine in which Lucent's counsel characterized Lucent's
fraudulent booking of the $125 million software pool agreement between Lucent
and Winstar as a "failure of communication," thus denying that an accounting
fraud had occurred.
Under the settlement, Plunkett will pay a civil penalty of $110,000 and agreed to
be permanently barred from acting as an officer or director of a public company.
Harris will pay a civil penalty of $100,000 and has agreed to be barred from
acting as an officer or director of a public company for five years. Petrini will pay a
civil penalty of $60,000 and disgorge $109,505, representing profits gained as a
result of the conduct alleged in the complaint, together with prejudgment interest
The other seven executives will pursue their differences with the SEC in court.
May 18, 2004
SEC Charges Lucent Employees With Fraud
By Christopher Stern, Washington Post Staff Writer
The Securities and Exchange Commission announced yesterday that it had filed
civil securities fraud charges against 10 telecommunications executives involved
in more than a dozen deals that allegedly resulted in Lucent Technologies Inc.
improperly reporting $1.15 billion in revenue.
The charges mark the culmination of an investigation into 20 transactions that
date to 2000. Of the 10 executives charged in the scandal, nine worked for
Lucent, the world's largest maker of telecommunications equipment. Three of
them have already reached settlements with the agency to resolve the charges.
The 10th was a former executive with Winstar Communications Inc. who the SEC
claimed had helped Lucent improperly book $125 million in revenue in the fourth
quarter of 2000.
At the time the deals allegedly took place, Lucent, like much of the
telecommunications industry, was sliding into a downturn after several years of
explosive Internet-related growth. In the complaint filed yesterday with the U.S.
District Court for the District of New Jersey, the SEC alleged that the Lucent
executives falsified documents, entered secret agreements and circumvented
Lucent's internal accounting controls in order to meet revenue goals.
The SEC's complaint claims that the executives were motivated by a "drive to
realize revenue, meet internal sales targets and/or obtain sales bonuses."
Lucent agreed in March to pay a $25 million fine to resolve SEC claims that it
failed to fully cooperate with the investigation. In a statement yesterday, the SEC
said the fine was related to the company's failure to turn over documents. In
addition, the SEC claims that Lucent officials made statements that misled the
public about the investigation.
As part of the investigation, the SEC focused on Lucent's dealings with Winstar.
In one key allegation, the SEC claims that former Winstar executive vice
president David W. Ackerman agreed to improperly inflate the price of a software
deal in order help Lucent's sales staff meet its revenue goals. The SEC alleges
that the actual value of the software deal was just $10 million and that Lucent
entered secret agreements with Winstar to make up the $125 million difference.
Those side deals included a $35 million credit toward future purchases and a $45
million credit toward future work by Lucent for Winstar. Ackerman allegedly
demanded that the agreements be put in writing. However, that demand raised
concerns for the Lucent executives because accounting rules would require that
the total value of the sale be offset by the future commitments.
The SEC alleges that to mislead Lucent's own accountants, Lucent executive
William Plunkett ordered another sales executive to draft false documents that
created the impression that the "side deals" were totally separate from the $135
million software transaction.
The SEC claims that the $125 million in revenue related to the Winstar
transaction accounted for 26 percent of the company's pretax income for the
fourth quarter of 2000. Lucent declined to make Plunkett available, and Ackerman
could not be reached at home.
Plunkett was one of three former Lucent executives who reached a settlement
with the SEC to resolve the charges filed yesterday. Plunkett agreed to pay a fine
of $110,000, the SEC said. Deborah Harris, a vice president of sales who
reported to Plunkett, agreed to pay a fine of $100,000. And Vanessa Petrini, an
assistant vice president of sales who reported to Harris, agreed to pay a fine of
$60,000 and give up a $109,505 bonus related to the allegedly improperly
recorded sales. All three executives were involved in the Winstar transaction, the
Of the nine Lucent executives charged by the SEC, three still work for the
company, said company spokesman William T. Price, who declined to identify
them. Lucent said it would complete a review of the employees charged by the
SEC now that the agency has filed its charges and completed its investigation.
"We are not going to comment any further on the circumstances or the individuals
named in the SEC complaint," Price said.
In other cases cited by the SEC, Lucent recorded more than $350 million in
equipment sales to two distributors with a promise that the equipment could be
returned if no buyers could be found. The arrangement violated accounting rules,
which require that any sale be final in order to report the proceeds as revenue.
Ultimately, the equipment was returned to Lucent, but only after the fourth quarter
The SEC launched its investigation of Lucent in 2000, after the company brought
the improper accounting to the government's attention. The company caught the
problem before filing its final audited financial statements with the SEC in 2000
and therefore was not required to restate any filings with the agency.
"Since bringing this matter to the SEC's attention, we have addressed these
issues with increased controls and disclosures in our organization," Lucent chief
executive Patricia F. Russo said in a prepared statement. "We are closing this
chapter in our history, putting it behind us and focusing on moving our business
© 2004 The Washington Post Company
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See also: NY Times: Lucent fined 25 Million by SEC
Corporation/CEO Scandal Investigations -
Election Cycle 2002
Lucent Technologies/ Henry Schact
Adjusted 2000 revenues by $679 million, spurring SEC investigation. Also
investigating whether vendor-financing played an improper role in sales.
Accountant: Pricewaterhouse Coopers LLP
Political Contributions: to Democrats: $39,550; to Republicans: $43,090
CEO Compensation: $21.56M salary, grant options
Other: stock drop since 1/14/00: -93.39%
< < < FLASHBACK < < <
Lucent Technologies Inc · DEF 14A · For 2/16/0
Filed On 12/21/99 · SEC File 1-11639 · Accession Number 912057-99-10197
COMMITTEES OF THE BOARD OF DIRECTORS
During fiscal 1999, the Board of Directors had two ongoing committees: an Audit
and Finance Committee and a Corporate Governance and Compensation
The Audit and Finance Committee meets with management periodically to
consider the adequacy of the company's internal controls and the objectivity of its
financial reporting. The committee also meets with the independent auditors and
with appropriate company financial personnel and internal auditors regarding
Both the independent auditors and the internal auditors regularly meet privately
with the committee and have unrestricted access to the committee. The Audit and
Finance Committee recommends to the Board the appointment of the
independent auditors. The Audit and Finance Committee reviews the company's
financing plans and reports recommendations to the full Board for approval and to
The committee has a written charter. The members of the committee have
reviewed the charter and believe that the committee complied with the charter in
fiscal 1999. The Audit and Finance Committee met five times in fiscal 1999. The
functions of the Corporate Governance and Compensation Committee include:
recommending to the full Board nominees for election as Directors of the
company, making recommendations to the Board from time to time as to matters
of corporate governance, administering management incentive compensation
plans, establishing the compensation of officers and reviewing the compensation
of Directors. The committee will consider qualified candidates for Director
suggested by shareowners in written submissions to Lucent's Corporate
COMPENSATION OF DIRECTORS
Each non-employee Director receives annually a retainer of $100,000 and an
option to purchase 5,000 shares of Lucent stock. The Chairman of each
committee described in the previous section receives an additional retainer of
$10,000. Directors may elect to receive between 50% and 100% of their retainer
in Lucent stock or an option to purchase Lucent stock or a combination of stock
and an option. Any remainder will be paid in cash.
Any option elected will enable the Director to purchase a number of shares equal
to three times the number of shares that could have been purchased with the
portion of the retainer elected to be received as an option. The exercise price per
share under the option will be the fair market value of a share on the date of
grant. Options will generally become exercisable on the six-month anniversary of
the date of grant and have a 10-year term.
Under the company's Deferred Compensation Plan, non-employee Directors
may defer all or a portion of their cash and stock compensation to a deferred
compensation account. Deferred compensation plan accounts have two
components. The first is a Lucent stock portion. The second is a cash portion.
Directors can defer receipt of cash retainers to either portion of their accounts.
The stock portion of a retainer can be deferred only to the Lucent stock portion of
An individual who became a non-employee director before 1999 may purchase
life insurance under a company program pursuant to which the company will pay
a portion of the premium. The amount paid by the company is to be returned to
the company no later than following the death of the individual. This benefit will
continue after the non-employee Director's retirement from the Board of
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In fiscal 1999, all of our independent Directors served on the Corporate
Governance and Compensation Committee. Franklin A. Thomas was the
Chairman of the committee. The other committee members were: Paul A. Allaire,
Carla A. Hills, Drew Lewis, Paul H. O'Neill, Donald S. Perkins and John A.
Young. Patricia F. Russo, Executive Vice President and CEO, Service
Provider Networks, is a director of Xerox Corporation, of which Mr. Allaire is
currently Chairman of the Board. During fiscal 1999, Mrs. Russo was also a
member of the Executive Compensation and Benefits and Nominating
Committees of Xerox.
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Upon recommendation of the Audit and Finance Committee, the Board has
reappointed PricewaterhouseCoopers LLP as the independent public
accounting firm to audit our financial statements for the fiscal year beginning
October 1, 1999. Representatives of PricewaterhouseCoopers will be present
at the meeting. They will be given the opportunity to make a statement if they
desire to do so, and they will be available to respond to appropriate questions...
BOARD OF DIRECTORS
The Board of Directors is divided into three classes currently consisting of three
Directors each, whose terms expire at successive annual meetings. This year,
Messrs. Drew Lewis and Donald S. Perkins will be retiring from the Board after
the annual meeting. Messrs. Lewis and Perkins have been Directors of the
company since 1996 and we are grateful to them for their counsel and business
advice. Following their retirement, one of the classes of Directors will consist of
one Director. We have nominated Mrs. Carla A. Hills, the remaining Director in
the class of Directors whose terms expire at the annual meeting, for a three-year
term that will expire at our annual meeting in the year 2003. You can find the
principal occupation and other information about Mrs. Hills below....
CARLA A. HILLS, Director of Lucent since 1996. Chairman and Chief Executive
Officer of Hills & Company (international consultants) since 1993, United States
Trade Representative (1989 -1993). Director of American International Group,
Inc., Chevron Corp. and Time Warner Inc. Committees: Member of the
Corporate Governance and Compensation Committee. Age: 65....
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For more on Lucent Technologies’ $1.1 billion accounting fraud, and WinStar
Communications, LLC; Sandwich Isles Communications; Summit
Communications, and PricewaterhouseCoopers, see:
WinStar and CCSI enter reseller agreement to offer Wireless Fiber ...
Sandwich Isles Communicatiions
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Buzzards of Paradise
Confessions of a Whistleblower
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Vultures of the Sandwich Isles
What Price Waterhouse?
William Simon Says...
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Originally posted: June 24, 2008, by The Catbird
Last updated: July 13, 2008