SEC Knocking on Lucent's Door

The hot water just keeps rising for Lucent Technologies Inc. (NYSE: LU). According to a report in today's Wall Street Journal, the beleaguered company faces a formal investigation by the U.S. Securities and Exchange Commission. At issue are alleged fraudulent accounting practices -- money on the books that shouldn't have been there.

The SEC refuses to confirm or deny the existence or status of the alleged investigation.

"This isn't news," Lucent spokesperson Michelle Davidson told Light Reading today. She says Lucent notified the SEC of suspect numbers based on its own audit late in November 2000. "We fully expected they'd look into the matter."

Lucent itemized its questionable revenue in an announcement on December 21, in which it stated the discovery of four major errors in its books, adding up to a total of $679 million. Lucent says the errors included a series of "misleading documentation" by salespeople, such as recording sales in the wrong quarter or putting purchase credits associated with one sale in the records of another quarter. This kind of problem resulted in the famous $125 million error that originally tipped off Lucent that it needed an overhaul of its financial records (see Lucent Shares Hammered by $125M Goof). Lucent also duly noted back in December that, in another $28 million error, revenue had been recorded for equipment that hadn't yet been shipped. And it stated that it was "taking back" $452 million in equipment that had been sent to integrators and distributors but not sold to end-customers.

The news here is that Lucent could wind up in more trouble than ever if the SEC decides to press charges. It's a situation that could stymie its recently announced plans for a slow comeback, a process that is scheduled to include the layoff of 10,000 employees (see Lucent Starts Cleaning Up).

Indeed, analysts are appalled. "Wall Street sees a lot of value in Lucent still," says Jim Jungjohann, analyst at CIBC World Markets. "But everyone's waiting for a catalyst to unlock that value. A fraud review isn't that catalyst."

The alleged investigation also highlights a growing backlog of litigation facing Lucent. Within the last month alone, four new securities class-action and stockholder suits have been opened against Lucent. That's in addition to at least two publicized early in January (see Lucent Faces Shareholder Suit and Lucent Sued Again).

The sheer volume of suits has caused Lucent to start reviewing its legal options, says spokesperson Davidson. And that includes consolidating the lawsuits in an effort to keep legal costs in hand.

The alleged SEC investigation also could have repercussions for ex-CEO Richard A. McGinn, who is named as a defendant in all of Lucent's pending securities-related litigation, along with current CEO Henry Schacht.

According to the Wall Street Journal, McGinn also is cited in a complaint by Nina Aversano, formerly president of Lucent's North American sales, who reportedly says McGinn fired her immediately following a meeting in October 2000. The paper says Aversano was one of at least two executives who gave McGinn "a detailed warning that Lucent's sales targets were unrealistic."

The paper also indicates that former Lucent CFO Donald Peterson, now CEO of Lucent's spinoff Avaya (NYSE: AV), was sometimes criticized for his "aggressive, but legal" accounting methods prior to his replacement by Deborah Hopkins in April 2000. Hopkins is now listed as a defendant in much of the Lucent litigation.

According to SEC records, McGinn was still negotiating his separation agreement with the board of Lucent in early January. In 2000, he was awarded $1,100,000 in base salary and a total of 3,434,820 shares of Lucent stock. He also received $137,384 in additional compensation, including payment of "above-market interest on deferred compensation." There was no bonus.

It is not clear what remuneration could come McGinn's way as a shareholder, in light of Lucent's recent spinoff of Agere Systems Inc., since it's not yet clear how the payoff on that transaction will be distributed among Lucent shareholders (see Agere Aims for $8.5 Billion IPO).

These year-2000 figures represented a cut in pay for McGinn, who earned a bonus of $5,129,636 in addition to his $1.1 million base salary in 1999 and $11,861,652 in bonuses in 1998.

By mid-afternoon today, Lucent stock was trading at 15.18, down 1.71 (10.12%).

-- Mary Jander, senior editor, Light Reading http://www.lightreading.com

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One who really cares!!! 12/4/2012 | 8:54:49 PM
re: SEC Knocking on Lucent's Door The upper management of Lucent, especially ONG stinks. There has to be a massive overhaul. In a recent shuffle in their start studded ONG BU all the rotten apples and their cronies were once again made "kings' of the Hill" -one more time. Almost a mafia there ...When will this stop. The truth is Mr. Kim has done nothing to improve matters. Many good employees have quit in disgust and the attrition continues. Lucent is replacing good, solid, and very experienced employees with college grads, some of whose soft spots haven't healed. They have no clue of how to change things. When an amployee walks in for an 8 hour day's work there is no guidance. The morale is very low and the productivity is at an all time low. The parking lots are empty, the employees are more concerned about their promotions, bonuses and vacations than fixing the problems - one at a time.

Some in Lucent ONG senior management have no clue of their products. Let us take an example: The ultra long haul is being led by a guy who's claim to fame is some "shrink" work he did in another division. This guy has no clue of technology and surrounds himself with his cronies every morning, beats his chest and attracts a lot of attention. He moved very smoothly from one definite disaster (400G)not having made any improvement -- to take over what definitely will be another disaster. What a nice way of buying more time!!

He has promoted incompetents to director level jobs who are as clueless as him if not worse. He is neither technically good nor has he any business savvy or track record of good business reuslts to back his present position. Question: did he intimidate/ brainwash (?) Jeong Kim to give him this job - Idi Amin of lucent?? He openly laid a claim on this job no sooner then a well known and respected VP of development quit - probably also in disgust from the reeking politcs.

This is just one example of a bull in the china shop, a wreck ball, aka senor management of Lucent ONG. This is the kind of dangerous trend that needs to be nipped in the bud.

Lucent needs a massive shake-up and mostly in the senior ranks. All the GMs deserve to be fired. There are a battery of Anderson consultants - about one every business unit who is supposedly hand-holding the management. Their lousy PowerPoint are not helping either.(remedies for common cold when the problem is cancer?) There are no two ways about this, in this ONG BU there is not a single GM - I repeat not a single one(this is what they are called these days!!) who has good results in their past or present jobs worth a farthing!! These GM's in turn have promoted some really incompetent nincampoops to Directors and so on the list continues.(mutual appreciation society)

The damage to Lucent is like the damage to humanity from like Aids and the Mad Cow Disease - per today's CEO announcement - it certainly is going to take many years to control and reverse.

The stock options in Lucent are not even worth toilet paper.

So although I would like to end by saying long live Lucent the truth is these bums are trying to find out how much more they can abuse this company before it will breakdown completely.

As far as the earnings reports, it was lies, more lies and even more lies and there were cover ups and then they were exposed in December. But the cronies who did the channel stuffing and brought the downfall are still walking in the halls of Lucent - tall and mighty. Shame that they are walking but not "walking their talk".
juniper 12/4/2012 | 8:54:42 PM
re: SEC Knocking on Lucent's Door I think Lucent ONG will lose China Market, because of poor managerment, poor product performance. Now Nortel will take the place of Lucent and became No. 1 optical vender in China.
shredj 12/4/2012 | 8:54:40 PM
re: SEC Knocking on Lucent's Door It's so true!!!!

In my last days at the Lazy-L, Kim was issuing daily memos describing the virtue of how wonderful everything was....despite the airplanes flying overhead (Qtera's recruiting effort)..... water bursting through the bulkheads.... flames shooting out from under the wings. The most compentent of all ONG's staff is in the Ministry of Propoganda at Holmdel. They've taken over offices vacted by fleeing engineers.
Harley 12/4/2012 | 8:54:40 PM
re: SEC Knocking on Lucent's Door When you say Long Haul, are you talking about Lambda Xtreme?

I'm curious of your thoughts, I met some of those folks.
WolfLarsen 12/4/2012 | 8:54:39 PM
re: SEC Knocking on Lucent's Door
It was either the Arizona RxMemory Ice-T or the unique wording of the following quote:

"...this ONG BU there is not a single GM - I repeat not a single one(this is what they are called these days!!) who has good results..."

But I now remember seeing this before... this is a repost and I find it funny to note that the earnings reference is probably talking about a different earnings report.

Msg to "One who really cares", lets hear some new info rather than just reposting when something angers you.
optinuts 12/4/2012 | 8:54:39 PM
re: SEC Knocking on Lucent's Door this board sucks. its populated with ex-lucent engineers eager to justify a bail-out from lucent to a startup with promises of great riches. now that the riches have evaporated, vacations have been non-existent for a couple of years, families are left way behind in order of priority, their jobs are on the line, and the CEOs of these companies have privately bailed out (read recent IPO filings), it seems all they have left is invective towards lucent. they are obviously are not going gentle into the good night.
One who really cares!!! 12/4/2012 | 8:54:24 PM
re: SEC Knocking on Lucent's Door Yes of course...
There are some good soldiers, but I am talking about the so called upper management. The soldiers cannot execute without a good general!!
One who really cares!!! 12/4/2012 | 8:54:23 PM
re: SEC Knocking on Lucent's Door Optinuts:

How come you visit this board if it sucks...
Does it occur to you that I may be a Lucent share holder. Napolean never wore a helmet - hit nut was harder than a helmet - so is yours...
and what makes you think I have bailed out... I make be even your office-mate!! But the problem is with people like you and I bet you may even be one of the self proclaimed top guns.

Finally about the guys who quit in disgust .. while you and I wait for our pension fund to vest, these guys who walked out have guts, hats off to them, at least they are not cowards like you to work 60+ hours in start-ups. So what if they fail, they fail by trying , not by hiding and being a coward like you. Who are you trying to defend? Incompetents like yourself. So which way is the Lucent stock heading..more skeletons in the cupboard?

BTW your job is on the line too - even more than the guys who walked out, at least they had a choice - we will rot in Lucent. If the company goes bankrupt, then hope you join me to mow the lawn.

You are a risk averse 'family oriented" non performer and people like you make Lucent a loser!!

You will learn the hard way.
One who really cares!!! 12/4/2012 | 8:54:22 PM
re: SEC Knocking on Lucent's Door Juniper:

This reponse was for you.

Yes of course...
There are some good soldiers, but I am talking about the so called upper management. The soldiers cannot execute without a good general!!

One who really cares!!! 12/4/2012 | 8:54:22 PM
re: SEC Knocking on Lucent's Door WolfLarsen:

Again ..yes this is a repost and I will continue to repost. This is the truth and if it hurts you then too bad. But one senior ex. in Lucent left a few weeks ago ... from ONG... and one by one until all of them leave I will speak up. If you don't have the guts too bad.

Forget about the earnings report, that is the least of the problems.

I am not angry, but I definitely am disappointed.
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