Lucent Settles With Whistleblower

Any skeletons in Lucent's (LU - Cramer's Take - Stockpickr) closets will remain shrouded in darkness for now, thanks to a legal settlement.

Less than a week before the case was due to go to trial, the telecom equipment maker and a former sales executive turned whistleblower came to terms. For Lucent, one of the first darlings of the tech bubble to help usher in the era of accounting scandals, the agreement closes one door, though others remain open amid an ongoing Securities and Exchange Commission investigation.

The deal, announced Thursday, ends a two-year-old dispute between ex-CEO Rich McGinn and former North American sales chief Nina Aversano. In October 2000, Aversano was given a $2 million severance package and shown the door after she charged that McGinn had made promises to Wall Street that the company couldn't possibly deliver on.

Lucent filed a rebuttal in reaction to Aversano's charges. Aversano's breach of contract claim was settled Thursday, but no terms were disclosed. The whistleblower charges were dismissed. Lucent shares jumped 13% during a broad tech rally Thursday to close at $1.42.

Lucent still faces an SEC probe and a class action lawsuit in connection with its business and accounting practices during McGinn's tenure. Smoldering suspicions as far back as 1999 held that Lucent was using aggressive bookkeeping to mask slower-than-expected sales growth. But it wasn't until a massive shortfall announced on Jan. 6, 2000, that those fears were confirmed, sending the stock into a prolonged spiral made worse by the collapse of the networking gear industry.

Aversano

Lucent watchers had anticipated that Aversano's trial would make for a very damaging public showcase since, she was privy to the workings of the company's entire domestic sales organization. Lucent has widely been criticized for self-inflicted wounds suffered under McGinn's leadership. Some observers say the company's sales-at-all-costs approach effectively poisoned its future business through aggressive vendor financing, steep discounts and even misbooked revenue.

The company has since restated some sales figures and sworn off its role as banker to its customers.

Soon after throwing Aversano out, McGinn himself was ousted. Lucent has since rehired Aversano's former boss, Pat Russo, as its CEO and cut nearly two-thirds of its staff in an effort to rebuild in an abysmal telecom equipment market.

"Even if there's no litigation risk," says CIBC World Markets analyst Steve Kamman, who has an underperform rating on the stock, "there's still plenty of execution risk."