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Lucent Settles SEC Enforcement Action Charging the Company with $1.1 Billion Accounting Fraud

Washington, D.C., May 17, 2004 - The Securities and Exchange Commission today charged Lucent Technologies Inc. with securities fraud, and violations of the reporting, books and records and internal control provisions of the federal securities laws. The SEC also charged nine current and former Lucent officers, executives and employees, and one former Winstar Communications Inc. officer with securities fraud and aiding and abetting Lucent's violations of the federal securities laws. The SEC's complaint alleges that Lucent fraudulently and improperly recognized approximately $1.148 billion of revenue and $470 million in pre-tax income during its fiscal year 2000.

Lucent and three of the former Lucent employees agreed to settle the case without admitting or denying the allegations. As part of the settlement, Lucent agreed to pay a $25 million penalty for its lack of cooperation.

"Companies whose actions delay, hinder or undermine SEC investigations will not succeed," said Paul Berger, Associate Director of Enforcement. "Stiff sanctions and exposure of their conduct will serve as a reminder to companies that only genuine cooperation serves the best interests of investors."

The SEC's complaint alleges that Lucent's violations of generally accepted accounting principles (GAAP) were due to the fraudulent and reckless actions of the defendants and deficient internal controls that led to numerous accounting errors by others.

In their drive to realize revenue, meet internal sales targets and/or obtain sales bonuses, the complaint alleges, defendants Nina Aversano, Jay Carter, Leslie Dorn, William Plunkett, John Bratten, Deborah Harris, Charles Elliott, Vanessa Petrini, and Michelle Hayes-Bullock, in their respective capacities as officers (Aversano and Carter), executives (Plunkett, Bratten, Dorn and Harris) and employees (Petrini, Elliott and Hayes-Bullock) of Lucent improperly granted, and/or failed to disclose, various side agreements, credits and other incentives (collectively "extra-contractual commitments") to induce Lucent's customers to purchase the company's products.

These extra-contractual commitments were made in at least ten transactions in fiscal 2000, and Lucent violated GAAP by recognizing revenue on these transactions both in circumstances: (a) where it could not be recognized under GAAP; and (b) by recording the revenue earlier than was permitted under GAAP.

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