Report: SEC probe of Lucent broader than disclosed

A U.S. Securities and Exchange Commission's (SEC) investigation of accounting practices at telecommunication equipment company Lucent Technologies Inc. is more extensive than initially disclosed, covering bookkeeping maneuvers occurring several years earlier than the improper transactions already acknowledged by Lucent, according to a Friday report in the Wall Street Journal.

Lucent announced two years ago that it had discovered accounting problems and adjusted downward by US$679 million its reported revenue for the fourth quarter of 2000. Returned equipment and the discovery of improperly recorded sales transactions prompted the adjustment, according to Lucent.

Two months later, the SEC initiated its own investigation, and is now reportedly on the verge of filing civil charges against Lucent. But its examination is stretching beyond the 2000 adjustment, probing older accounting practices and charges, including a $2.6 billion restructuring charge Lucent took in 1995 prior to its spinoff from AT&T Corp., according to the WSJ.

In years following the charge, the company reversed $540 million of a $1.9 billion reserve it set up concurrent with the charge -- reversals that helped it post a lengthy run of beating analyst earnings expectations, the WSJ said. The SEC is seeking to determine if Lucent intentionally overstated the restructuring charge to give itself a cushion for later use, according to the paper.

Several other companies have been caught working such maneuvers, commonly referred to as "cookie jar" accounting. Microsoft Corp. settled with the SEC earlier this year over charges it had been setting aside income in flush quarters to pad out leaner ones.

The SEC is also looking into whether any current or former Lucent board members knew of accounting violations as they were occurring, and is seeking to determine if Lucent executives provided financial forecasts in 1999 and 2000 that they knew or should have known could not be met, the WSJ said.

Lucent has no reason to believe the SEC has expanded its investigation, said spokesman Frank Briamonte.

"In our conversation with the SEC yesterday, they told us they are close to completing their two-year investigation," he said. "We continue to cooperate fully with the SEC in an effort to bring this matter to a close."

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