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Lucent Purges China Leaders

Lucent Technologies Inc. (NYSE: LU) announced this morning that is has found possible violations of the Foreign Corrupt Practices Act (FCPA) and has fired four employees based in China who may be involved with those violations.

Lucent said it had fired the president, the chief operating officer (COO), a marketing executive, and a finance manager of the company’s China operations. The news was disclosed in an 8-K filing with the Securities and Exchange Commission (SEC).

Lucent would not confirm the names of those fired. According to the Lucent Website, Jason Chi was listed in a Lucent press release as president of Lucent Technologies China as recently as January 2004. Michael Kwan was named chief operating officer of its operations in China in 2001 and served in that position as recently as February 2004.

The FCPA is a set of federal laws aimed to prevent corrupt business practices by U.S. multinationals operating in foreign countries.

Lucent said that “deficiencies” in complying with the FCPA in its Chinese divison led to the dismissals, and it is now cooperating with the U.S. Department of Justice and the SEC in an ongoing investigation. Lucent said it found these problems in audits performed on operations in 23 foreign countries, including Brazil, China, India, Indonesia, the Philippines, and Russia, a U.S.-based operation that supports sales in China, and other global operations.

The market had a muted reaction to the news, as if to shrug and say, "Really? Bribery in China? You must be kidding." Lucent shares were off a smidge, trading down $0.03 (0.67%) to $4.39.

The move does strike a blow to Lucent’s Asian operation at a time when competition for business in China is red-hot. The firings cast some doubt on Lucent’s recent success in China, which has been touted by Lucent executives and was the key to its financial performance in its last quarter (see China Deals Brighten Lucent's Day and China, Wireless Save Lucent .

Steve Levy, an analyst at Lehman Brothers, qualified the news as a minor negative.

”Our first reaction is that this is a headline negative for LU,” wrote Levy in a research note issued this morning. “For reference, Lucent's sales to China represent around 10 percent of total sales. We are optimistic that the reorganization and new policies implemented in Lucent's China operations should not materially disrupt business.”

Lucent started the audit of its global operations after discovering potential violations with the FCPA, it disclosed in the filing. It said these potential problems came to light after similar charges were reported in its operations in Saudi Arabia, which is the subject of a government investigation and a lawsuit between Lucent and Silki La Silki National Telecommunications Ltd. a consulting company that has sued Lucent (see Saudi Firm Sues Lucent for Bribery).

On an interim basis, Lucent’s Chinese operations will report to Robert Warstler, president of global sales, said the company.

— Scotti La Scotti Raynovich, US Editor, Light Reading

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