Lucent's Cloudy Picture

Yesterday, Lucent Technologies (NYSE: LU  ) announced that it has finally settled one of at least three outstanding investigations of its accounting by the Securities and Exchange Commission (along with GTECH Holdings (NYSE: GTK  ) , IBM (NYSE: IBM  ) and Lockheed Martin's (NYSE: LMT  ) acquisition target Titan (NYSE: TTN  ) , Lucent is also subject to an SEC probe into alleged violations of the Foreign Corrupt Practices Act in Saudi Arabia and China).

Lucent, nine of its current and former staffers and one former officer of bankrupt Winstar Communications (now a division of IDT Corporation (NYSE: IDT  ) ) were officially charged with various combinations of securities fraud, accounting fraud, and related charges. Simultaneously, Lucent and three of its employees were allowed to settle the charges for the bargain prices of $25 million (for Lucent) and $100,000, $110,000, and $193,000 (for the three employees). All with the standard "no admission of liability," of course.

This is kind of old news in two ways. First, the investigation concerns Lucent's "vendor financing" binge in the waning days of the last bull market. Back then, desperate to keep its revenues rising to meet analysts' expectations, Lucent often "sold" goods to its customers on credit. This was a great deal for all parties involved. The profitless telecom clients got to buy truckloads of equipment and software from Lucent for "no money down." And Lucent booked the revenues before it actually got paid. Indeed, in some cases, it never did get paid. In all, the fraud involved well over $1 billion in improperly recognized revenue, and nearly half that in income, for fiscal 2000 alone.

The other way this is old news, is that yesterday's settlement has already been announced twice before, first in February of last year, then again in March of this year (after Lucent's former CEO blew up the first deal by publicly denying any wrongdoing).

Pro-Lucent analysts have apparently been running around saying that, because the above is all "old news," it should not affect the stock price. I disagree.

According to the SEC's press release on the settlement, the $25 million fine that Lucent is paying is not a penalty for its securities fraud per se. It is punishment for not cooperating with the SEC's investigation. So Lucent has just antagonized the Feds in one investigation, and it has two more probes ongoing -- before what I presume are now some very angry regulators. I wonder how lenient the SEC is going to feel next time around?

Is the worst over for Lucent? Fools are talking about it on the Lucent Technologies discussion board.

Fool contributor Rich Smith owns no shares in any of the companies mentioned in this article.

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