Lucent Ex-CEO Rich McGinn Has Some Explaining to Do

(posted 4/23/2005) - If there is justice in Corporate America then executives that make millions as their companys flounder need to be held accountable financially, if not criminially when they misbehave.

Read the following recent report on SEC bribary and fudicial misconduct investigations of Lucent's ex-CEO Rich McGinn.

While fines may certainly be levied against the 'incorporated' body, namely Lucent Technologies, it would only be fair and just if Lucent sued Mr. McGinn to recover some of the 10's of millions it paid him in good faith (and continues to pay him in retirement at about $1.25 million/year). Following is an article published in The Motley Fool.

SEC Targets Lucent Ex-Execs

By Rich Smith November 11, 2004

Back in April, we discussed the implications of Lucent's (NYSE: LU) announcement that it is at risk of federal prosecution for possible violations of the Foreign Corrupt Practices Act (FCPA) by its Chinese subsidiary. The investigation was initiated when Lucent voluntarily informed the Securities and Exchange Commission (SEC) and Department of Justice (DOJ) of deficiencies in its internal business controls and procedures in China.

Ordinarily, you might expect the Feds to cut a company some slack when it rats itself out like this (although that hasn't been the case with other forthcoming companies such as Titan (NYSE: TTN), which saw its sale to Lockheed Martin (NYSE: LMT) fall through over a similar investigation). And in any case, Lucent's in a rather tricky position here because at the time it informed the SEC and DOJ of its China situation, these agencies were already looking into an alleged FCPA violation by Lucent in Saudi Arabia.

Earlier this week, the Saudi situation took a turn for the worse. On Monday, Lucent announced that Richard McGinn, Lucent's CEO from 1996 to 2000, and two other ex-Lucent officers have received 'Wells notices' from the SEC, advising that they may be civilly charged with bribery, failure to keep accurate accounting records, and failure to maintain adequate internal controls over company funds. Investors may be tempted to take heart from this announcement, as it was addressed to the officers themselves and not to the company. But that would be a mistake.

One of the key provisions of the FCPA is that it makes a company liable for the acts of its agents. Thus, if the ex-Lucent execs are found to have done something improper here, it will logically follow that the company was at fault as well. Moreover, the fact that the SEC is proceeding to the formal investigation stage strongly suggests that the SEC thinks its charges have merit, and will continue to pursue them.

As we pointed out back in April, 'these investigations tend to drag on, and to drag down a targeted company's stock price while they last. Lucent shareholders may well be in for a long next few months.' And indeed, since that article ran, Lucent's stock has dropped 15% in value, despite the company (1) turning in its first profitable year since 2000 and (2) being granted a windfall tax refund by the IRS in the meantime.

Fool contributor Rich Smith