The Lucent Accounting Scandal
The Lucent Accounting Scandal
Abstract
The case discusses the accounting frauds committed at the US-based telecommunications giant, Lucent Technologies Inc. (Lucent) during early 2000. It provides an insight into the ways by which the financial statements were manipulated at Lucent.
It examines the loopholes in the financial management of the company and the price it had to pay for circumventing the provisions of law. The case examines the allegations against Lucent and its officers with reference to the Securities Exchange Act, 1934. Finally, the case throws light on the damage control measures taken up by the new CEO to improve the company's performance and restore investor confidence.
Introduction
On January 06, 2000, the headlines of several financial dailies in the US read, "Lucent declares that revenues would be lower than expectations." "Class action suit against Lucent for making misleading financial statements." "Why Lucent fell." "Whither Lucent" and so on.
For the first time since 1996, the year when the US-based Lucent Technologies Inc. (Lucent) was hived off as a seperate entity, the company acquired the dubious distinction of making news for all the wrong reasons.
Things got worse as time passed and snowballed into a series of class action litigation, investigation into the accounting practices of Lucent by the Securities Exchange Commission (SEC), $25 mn fine and loss of reputation. It was a painful transition for Lucent from being a favorite among investors to a company steeped in scandal and litigations.
If the announcement in January 2000 regarding revenues falling short of expectations was bad for the company, the announcement in late 2000, that there was an accounting irregularity of $125 mn revenues in its fourth fiscal quarter ended September 30, 2000, was much worse.
Owing to such accounting irregularities, Lucent announced that it would have to adjust $679 mn from the revenue figures for the quarter.
These irregularities
Abstract
The case discusses the accounting frauds committed at the US-based telecommunications giant, Lucent Technologies Inc. (Lucent) during early 2000. It provides an insight into the ways by which the financial statements were manipulated at Lucent.
It examines the loopholes in the financial management of the company and the price it had to pay for circumventing the provisions of law. The case examines the allegations against Lucent and its officers with reference to the Securities Exchange Act, 1934. Finally, the case throws light on the damage control measures taken up by the new CEO to improve the company's performance and restore investor confidence.
Introduction
On January 06, 2000, the headlines of several financial dailies in the US read, "Lucent declares that revenues would be lower than expectations." "Class action suit against Lucent for making misleading financial statements." "Why Lucent fell." "Whither Lucent" and so on.
For the first time since 1996, the year when the US-based Lucent Technologies Inc. (Lucent) was hived off as a seperate entity, the company acquired the dubious distinction of making news for all the wrong reasons.
Things got worse as time passed and snowballed into a series of class action litigation, investigation into the accounting practices of Lucent by the Securities Exchange Commission (SEC), $25 mn fine and loss of reputation. It was a painful transition for Lucent from being a favorite among investors to a company steeped in scandal and litigations.
If the announcement in January 2000 regarding revenues falling short of expectations was bad for the company, the announcement in late 2000, that there was an accounting irregularity of $125 mn revenues in its fourth fiscal quarter ended September 30, 2000, was much worse.
Owing to such accounting irregularities, Lucent announced that it would have to adjust $679 mn from the revenue figures for the quarter.
These irregularities