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Lucent, Nine Employees Cited for Fraud by SEC

The company will pay $25 million to settle the revenue-inflation case.


Securities and Exchange Commission




and nine current and former employees Monday with securities fraud and other crimes, saying they took part in a scheme that inflated the company's year-2000 revenue by $1.15 billion and boosted the pretax bottom line by $470 million.

Lucent and three of the former employees agreed to settle the case without an admission of guilt, with the telecom equipment maker ceding to a $25 million fine. The SEC complaint alleged securities fraud, reporting infractions, books and record-keeping violations and failure to maintain proper financial controls. An executive of

Winstar Communications

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was also charged.

Lucent and the defendants' "fraudulent and reckless actions," along with "deficient internal controls that led to numerous accounting errors by others," led the company to overstate its top and bottom lines in 2000 in a "drive to realize revenue, meet internal sales targets and/or obtain sales bonuses," the agency alleged.

"Lucent 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," the SEC alleged. "These extra-contractual commitments were made in at least 10 transactions in fiscal 2000, and Lucent violated generally accepted accounting procedures 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 under GAAP."

Lucent itself was cited for providing incomplete documents during the probe, failing to produce documents until after the testimony or relevant witnesses, and failing to ensure that relevant documents were preserved. The company was also cited by the SEC for allowing CEO Henry Schacht's lawyer to tell


magazine the company's inflated revenue was the result of a "failure of communication" after Lucent and the agency had reached an agreement in principle.

"Lucent's statements were made after Lucent had agreed in principle to settle this case without admitting or denying the allegations," it said. "Lucent's public statements undermined both the spirit and letter of its agreement in principle with the staff."

Along with Lucent, Plunkett, Harris and Petrini settled with the SEC, agreeing to permanent injunctions against future violations of the anti-fraud, reporting, books and records and internal controls provisions of the federal securities laws. Plunkett will pay a civil penalty of $110,000, Harris will pay $100,000 and Petrini will pay a $60,000 fine and $109,505 in disgorgements.

The SEC will litigate the case against the remaining seven defendants.