U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
Litigation Release No. 19502 / December 20, 2005
Accounting and Auditing Enforcement
Release No. 2356 / December 20, 2005
Securities And Exchange Commission v. Lucent Technologies Inc., et al., Civil Action No. 04-2315 (WFW) (MF) (filed May 17, 2004).
Court Enters Final Judgments Against John Bratten and Charles Elliott
On December 12, 2005, the U.S. District Court for the District of New Jersey entered final judgments against John Bratten ("Bratten") and Charles Elliott ("Elliott"), two employees of Lucent Technologies, Inc. ("Lucent"). In its Complaint filed on May 17, 2004 and amended on September 30, 2005, the Commission alleged that on September 30, 2000, Lucent and BellSouth Telecommunications, Inc. ("BellSouth") entered into a software pooling agreement, called LOA 105, which obligated BellSouth to pay Lucent $95 million by April 1, 2001 for software that it had to select by September 30, 2002. To induce BellSouth to enter into LOA 105, Bratten agreed to provide BellSouth with a $20 million credit and a 2 percent price discount (valued at $1 million). Bratten failed to notify Lucent's CFO structure that he had agreed to the credit and discount as part of a software pooling transaction. In addition, on October 10, 2000, Bratten executed a letter to BellSouth that falsely represented 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 LOA 105. As a result of their fraudulent conduct, Lucent violated GAAP by recording the entire $95 million as revenue and operating income, rather than $74 million.
Bratten, a sales Vice President at Lucent, failed to notify Lucent's CFO structure that he had agreed to a $20 million credit and a 2 percent price discount as part of a software pooling transaction entered into by Lucent and BellSouth Telecommunications Inc. ("Bellsouth") on September 30, 2000. In addition, on October 10, 2000, Bratten executed a letter to BellSouth that falsely represented that the credit and discount had been granted on that date rather than in September. The letter was drafted by Elliott, a Senior Manager at Lucent who knew that Bratten had granted the credit and discount in September as an inducement for BellSouth to enter into the software pooling agreement. As a result of their fraudulent conduct, Lucent materially overstated pre-tax income in its financial statements filed with the Commission in a form 8-K on October 24, 2000.
Without admitting or denying the allegations in the Commission's Complaint, Bratten and Elliott each consented to the entry of final judgments that permanently enjoin them from violating the antifraud provisions of the federal securities laws and from circumventing or knowingly failing to implement internal controls or directly or indirectly falsifying, or causing to be falsified, a book or record, specifically, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder. The Court also enjoined Bratten and Elliott from aiding and abetting the periodic reporting, internal controls, and books and records provisions of the Exchange Act, specifically, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-11 thereunder, and ordered Bratten to pay a $40,000 civil penalty and Elliott to pay a $25,000 civil penalty. Lucent and four other individuals have previously settled the Commission's action against them. The Commission's action continues against former Lucent employees Nina Aversano, Jay Carter, Alice Leslie Dorn, and Michelle Hayes-Bullock.
For more information, see Litigation Releases Nos. 18715 (May 17, 2004) and 19437 (October 20, 2005).