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Former Alcatel Exec Cries Foul

Pierre Suard, former chairman of Alcatel SA (NYSE: ALA; Paris: CGEP:PA), is out pumping a soon-to-be-published book in which he accuses his former employer of shady accounting practices. Suard himself resigned from Alcatel in 1995 amidst accusations that he was redirecting company funds to refurbish his home. Another scandal tied to Suard's reign involves a case in which Alcatel allegedly overbilled customer France Telecom SA.

After Suard aired some of his laundry in the French publication Le Parisien earlier this month, Alcatel's stock began to dip. Investors feared they were witnessing the birth of another Enron-like corporate accounting scandal.

In a message sent to Alcatel's employees, current chairman Serge Tchuruk downplayed Suard's accusations: "The least we can say, it is highly unusual that a former chairman, who left six years ago, now tries to destabilize a company that he used to manage [in order] to justify his past behavior and starts a press campaign in such sensitive times."

Suard contends that in 1995 Alcatel should have reported a substantial profit rather than the loss it reported. Alcatel says its results for that year were fine and that the charges it took against earnings were "not excessive." The company took a restructuring charge of €1.6 billion (US$1.38 billion) and a €1.7 billion ($1.47 billion) goodwill writeoff for companies it acquired that year.

Alcatel also said it doesn't deconsolidate its subsidiaries in order to transfer or hide operations. In fact, the company contends that one reason for its exceptional losses in 2001 was that it reduced the value of its assets and did not resort to "financial schemes to mitigate value losses."

Until Suard's book becomes widely available, it's difficult to say how he backs up his claims. But just his willingness to toss off allegations has emboldened other Alcatel critics.

Alan Dransfield, a former area manager for Alcatel in the Philippines, says he's intrigued by Suard's accusations. When Suard was chairman, Dransfield complained that several telephone systems Alcatel had designed and installed for the Philippines Long Distance Telephone Company were "inferior and unsafe." He also claims that several Alcatel managers misused the funds earmarked for the project.

When all was said and done, however, it was Dransfield who was sacked and charged with fraud. A warrant was issued for his arrest in the Philippines.

"When my original allegations went to Suard in 1995, he didn't do anything about it," says Dransfield. "It seems like now we're singing from the same songbook."

— Phil Harvey, Senior Editor, Light Reading

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