Accounting & Tax

Two Fined in Lucent Accounting Scandal

To seal a software deal, the individuals agreed to a credit and discount but kept Lucent's senior finance management in the dark.
Stephen TaubDecember 20, 2005

Two former employees of Lucent Technologies Inc. are the subjects of a judgment rendered in U.S. District Court for the District of New Jersey, stemming from the telecommunications equipment maker’s accounting scandal.

According to the Securities and Exchange Commission, “fraudulent conduct” by former vice president of sales John Bratten and another former employee, Charles Elliott, caused Lucent to violate generally accepted accounting principles by misreporting the entire proceeds of a software pooling agreement as revenue and operating income.

In its complaint, the commission alleged that on September 30, 2000, Lucent and BellSouth Telecommunications Inc. entered into a pooling agreement that required BellSouth to pay Lucent $95 million by April 1, 2001, for software that it had to select by September 30, 2002.

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To induce BellSouth to enter into the agreement, the SEC continued, Bratten agreed to provide BellSouth with a $20 million credit and a price discount valued at $1 million, but he allegedly did not notify Lucent’s “CFO structure” that he had agreed to the credit and discount as part of the transaction.

The regulator added that on October 10, Bratten sent a letter to BellSouth falsely representing that the credit and discount had been granted on that date rather than in September. The letter was drafted by Elliott, “who knew that Bratten had granted the credit and discount in September as an inducement for BellSouth” to enter into the agreement, the commission also charged.

Bratten was ordered to pay a $40,000 civil penalty and Elliott, a $25,000 penalty.

Lucent and four other individuals previously settled related SEC actions; the commission continues to pursue charges against four others.