Tracking the Vultures in...
Lucent Technologies
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 SEC probe.
"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 fiscal 2000.
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 products."
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. http://www.nysd.uscourts.gov/courtweb/pdf/D02NYSC/05-00127.PDF
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 of $23,487.
The other seven executives will pursue their differences with the SEC in court.
http://www.cfo.com/article.cfm/3013903?f=search
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 SEC said.
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 closed.
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 forward."
© 2004 The Washington Post Company
www.washingtonpost.com/wp-dyn/articles/A34620-2004May17.html
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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%
http://www.citizenworks.org/enron/corp-scandal.php
< < < 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 Committee.
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 these matters.
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 authorize action.
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 Secretary....
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 account.....
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 Directors.
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:
http://www.cfo.com/article.cfm/3005324
http://www.sec.gov/news/press/2004-67.htm
http://www.cfo.com/article.cfm/3013903?f=search
www.opastco.org/doclibrary/1300/USFWhitePaper.pdf
http://telephonyonline.com/mag/telecom_falling_winstar/
WinStar and CCSI enter reseller agreement to offer Wireless Fiber ...
Sandwich Isles Communicatiions
www.kycbs.net/SandwichIsles.htm
www.kycbs.net/Summit-Communications.htm
www.kycbs.net/PriceWaterhouse.htm
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“perishing for lack of knowledge”...
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Originally posted: June 24, 2008, by The Catbird
Last updated: July 13, 2008