The Commission settled with two more defendants in its long running financial fraud action, SEC v. Lucent Technologies, Inc., Case No. 04-2315 (D.N.Y. Filed May 17, 2004). The settlements were with defendants Jay Carter, the former president of Lucent’s AT&T Customer Business Unit, and Alice Dorn, the former Vice President of Indirect Sales for North America.

The complaint alleged violations of the antifraud and books and records provisions of the federal securities laws. Specifically, the SEC claimed in its complaint that the company had improperly recognized revenue. The key allegation against each defendant is that they authorized or approved verbal side agreements, credits or other incentives in connection with sales. The deals were made to induce Lucent’s customers to purchase equipment. According to the complaint, the extra-contractual commitments cast substantial doubt on Lucent’s ability to collect payment on these sales. Those arrangements also made it improper under GAAP to recognize the revenue. As a result, the pre-tax income in Lucent’s financial statements was materially overstated.

Previously, the court granted summary judgment in favor of Mr. Carter, Ms. Dorn and two other defendants on the question of primary liability. Mr. Carter was alleged to have been involved in four sales involving AT&T Wireless Services where revenue was improperly recognized. Ms. Dorn was alleged to have been in five such transactions with two of Lucent’s top distributors. In ruling on the motion, the court rejected SEC claims that each was a primary violator under the antifraud provisions. The court applied the “bright line” test developed by the Second Circuit as discussed here.

To settle the remaining portions of the case, Mr. Carter consented to the entry of a permanent injunction prohibiting future violations of Exchange Act Section 13(b)(5) and to the payment of a $25,000 civil penalty. Ms. Dorn consented to the entry of a permanent injunction prohibiting her from aiding and abetting violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) and enjoined from violating or aiding and abetting violations of Exchange Act Section 13(b)(5). She also agreed to pay a civil penalty of $40,000. See also Litig. Rel. 21551 (June 9, 2010).