SEC looks into Lucent's accounting
By Greg Farrell USA TODAY
The Securities and Exchange Commission is investigating possibly improper accounting at Lucent Technologies (LU), government officials say.
The SEC is probing whether Lucent used aggressive accounting in 1999 and 2000 to inflate sales numbers.
The SEC enforcement division plans to send the company a "Wells notice" within days, according to a government source familiar with the investigation. The SEC uses such notices to advise recipients that its staff plans to recommend filing civil charges and give them a chance to reply.
Occasionally, the recipient of a Wells notice convinces the SEC that legal action is unwarranted, but typically a Wells notice leads directly to a civil lawsuit. The five-member SEC has to vote to accept the staff's recommendation before charges can be filed.
SEC charges would be another blow to a company that's been reeling from bad news since the telecommunications collapse two years ago. The maker of telecommunications equipment lost about $12 billion in the year ended Sept. 30 and cut almost 40% of its workforce over the previous 12 months.
Lucent spokeswoman Mary Lou Ambrus said the company had not received a Wells notice, but "this request, if it came, would be routine."
Two years ago, Lucent alerted the SEC to accounting problems it discovered in its fiscal 2000 earnings statement. A month later, it revised those earnings downward, having identified $679 million of improper transactions. The SEC took no action then.
Although the SEC would not comment, a source familiar with the matter said the SEC's case would involve many of the accusations raised in a shareholder lawsuit against Lucent.
A federal judge in Newark, N.J., recently denied Lucent's request to dismiss the lawsuit, which alleges that Lucent executives booked hundreds of millions of dollars in bogus revenue by claiming:
Non-existent sales. The lawsuit cites former Lucent employees who claim that fictional sales went on the books. It also charges that some executives booked sales to customers classified as "CNR," meaning "customer not ready." That allowed Lucent to record installation revenue at the time of the order, well before the equipment would be installed.
"Channel stuffing." The lawsuit alleges executives booked large sales and shipped product after reaching private agreements with distributors that they didn't have to pay for anything they didn't sell. The lawsuit cites an internal memo in which a top Lucent executive complains that sales employees had an incentive to stuff the distribution channel with product because they were paid on commission, regardless of how much product got returned. Those allegations are similar to conduct Lucent admitted in 2000. |
