Lucent Technologies Ripping Employees Off?

[bank5]

I was talking to a form Lucent Technologies employee today. He told me that when he worked there management changed employees retirement accounts behind their backs and invested everything in Lucent stock. He said he lost hundreds of thousands from it but only got a $56 check from the class action lawsuit.

I didn't believe him at first but maybe something sketchy did go on. Does anyone know the details behind it?

[RunningBum]

Doesn't sound true. Former Workers at Lucent See Nest Eggs Vanish, Too - The New York Times

Company stock was an option in the 401K program, and the company match was in Lucent stock, rather than the allocation chosen by the individual. The former isn't a great idea because you've also got your paycheck eggs in that basket, but Lucent was a flyer for awhile there. The latter is unusual. There was also the typical employee stock purchase plan offering.

The lawsuit seems to be a complaint that the execs continued to offer the Lucent stock options on the 401K and ESPP even though they allegedly knew the company was going to tank.

[Leonidas]

Google "Lucent Pension Lawsuit" and you'll find a plethora of lawsuits out there by former Lucent employees. Without knowing the outcome of the suits, it does appear that many retirees feel that Lucent screwed them in a number of ways on retirements. There was one brief mention of the allegations that you noted.

[bank5]

Quote:

Originally Posted by RunningBum Doesn't sound true. Former Workers at Lucent See Nest Eggs Vanish, Too - The New York Times Company stock was an option in the 401K program, and the company match was in Lucent stock, rather than the allocation chosen by the individual. The former isn't a great idea because you've also got your paycheck eggs in that basket, but Lucent was a flyer for awhile there. The latter is unusual. There was also the typical employee stock purchase plan offering. The lawsuit seems to be a complaint that the execs continued to offer the Lucent stock options on the 401K and ESPP even though they allegedly knew the company was going to tank.

So management gave incentives to invest in the company stock to drive the stock price up. I can see how people feel duped -- diversify, diversify, diversify!

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Originally Posted by NYT article Management encouraged them to invest in the company in a tempting offer. First, workers could buy stock through the employee stock purchase plan, deducting up to 10 percent of their pay toward stock purchases at a 15 percent discount. Second, workers could invest in Lucent shares through their 401(k) retirement plans, and some had their plans entirely invested in Lucent. Blue-collar workers received the company's voluntary 401(k) matching contribution in Lucent stock. Finally, many Lucent workers received incentives and pay in options and more options to buy stock, contracts now largely worthless. Almost every rank-and-file Lucent worker received stock options.

[RunningBum]

Quote:

Originally Posted by bank5 So management gave incentives to invest in the company stock to drive the stock price up. I can see how people feel duped -- diversify, diversify, diversify!

Is that a good basis for a lawsuit? You could go after nearly every tech company in the 90s then. Most of us would've felt cheated if we didn't get that chance to share in the tech stock boom.

Do employee stock options drive up the price? I've heard complaints from public shareholders about how many options employees are getting.

Sounds like employees are complaining that management didn't share inside information that the sales numbers were bad. Shouldn't they have shared that info with public shareholders as well?

[bank5]

RunningBum, I don't really know enough about what happened to answer those questions but here's my best shot.

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Originally Posted by RunningBum Is that a good basis for a lawsuit?

From the outside it doesn't seem like a good basis because as far as I can tell the company didn't do anything illegal. However, if management lied and purposely misled employees then I think a lawsuit would be justified.

I guess since Lucent is losing some of the lawsuits the courts feel the lawsuits are justified.

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Originally Posted by RunningBum Do employee stock options drive up the price?

I would think it would help. Instead of giving millions in cash bonuses, the money went straight into the stock.

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Originally Posted by RunningBum Sounds like employees are complaining that management didn't share inside information that the sales numbers were bad. Shouldn't they have shared that info with public shareholders as well?

What was Enron's famous meeting where Skilling (or was it Lay?) was telling people how well the company was doing and to buy stock. Then a couple days later management sold millions of stock. I forget, was this a meeting just for employees or for all shareholders?

I could see why management would push the stock to employees and not the public. It's much easier to convince your own blue collar workers about how well the company is doing than Warren Buffett.

[chinaco]

Lucent was selling equipment to anyone who would buy in on extremely liberal credit terms. Several analysts pointed it out back during the tech bubble.

I got burned on it (as an investor).

I thought the companies management was unacceptable. I did not look at their compensation... But I assume managers were getting huge stock options. Which was incentive to give equipment away to any new tech company that would sign their name to a contract.

When the bubble burst, it was all over.

This is a good example of why there needs to be reform in corporate governance and compensation... there should be a clawback clause. It should not be at the discretion of the board.... the board and management (sometimes one and the same) wash each others hands and cover for one another.

[HFWR]

I'm confused... Doesn't creating more shares to give to employees "dilute" the shares already in existence?

[Nords]

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Originally Posted by HFWR I'm confused... Doesn't creating more shares to give to employees "dilute" the shares already in existence?

Well, yeah, but back then it was really different this time.

Companies used to buy back shares and redistribute them to employees to maintain roughly the same float. Of course the former program was much more heavily advertised than the latter, so the share price would jump on the buyback announcement even though months later people would finally notice that the float hadn't changed.

I think Carly Fiorina has destroyed more share value at top companies than almost any other exec. Maybe that's why she's set her sights on the big leagues...

[HFWR]

Quote:

Originally Posted by Nords Well, yeah, but back then it was really different this time.

Boards authorize X number of shares for secondary offerings, then hold some in reserve for this. But, re: buybacks, companies often "buy high"...

[Bimmerbill]

I worked for LU from 2000-2002. There was a LU fund in the 401k, but also others like Fidelity Magellan etc.

I knew a guy and his wife who worked there from the Bell Labs day and they had all their $ in the LU fund. They pretty much lost it all.

LU stock was in the high 70s when I started (I think) and soon dropped to $8 a share. They had a ESPP with a 15% discount, so I had a lot of LU stock which I finally sold for a loss a few years ago (after many spin-offs and Alcatel buying them).

I remember the Worldcom fiasco. Huge money in LU equipment sold with no guarantees to the startups, they lost it all!