SEC Charges Four More Ex-Nortelers

SEC brings charges against four former finance VPs

September 13, 2007

2 Min Read
SEC Charges Four More Ex-Nortelers

The Securities and Exchange Commission (SEC) expanded its civil case against former Nortel Networks Ltd. executives yesterday, charging four more former members of the management team in the accounting suit. (See SEC Expands Nortel Case.)

The SEC brought charges against the former finance heads of four of Nortel's business units, claiming that they participated in accounting fraud by manipulating financial reserves to smooth out the company's earnings.

The charges were filed against Doug Hamilton, Craig Johnson, James Kinney, and Ken Taylor, who were the former VPs of finance for Nortel's optical, wireline, wireless, and enterprise business units while the alleged accounting fraud took place.

The SEC's new charges are added to standing charges against former Nortel CEO Frank Dunn, former CFO Doug Beatty, former controller Mike Gollogly, and former VP of corporate reporting MaryAnne Pahapill. The complaint alleges that they cooked the books while serving as executives of Nortel between September 2000 and January 2004. (See SEC Charges Ex-Nortel Execs.)

The amended complaint claims that from the second half of 2002 through January 2003, the four finance VPs did not release excess reserves as demanded by Generally Accepted Accounting Principles (GAAP), but instead maintained them for earnings management purposes.

The suit alleges that in January 2003, the four acted on orders received by Dunn, Beatty, and Gollogly to set aside $44 million in excess reserves to lower Nortel's earnings and bring it in line with market expectations.

Finally, the amended complaint alleges that Dunn, Beatty, and Gollogly directed the release of about $500 million in excess reserves to inflate earnings that would lead to bonuses granted to the management team.

Nortel is still trying to recover from the accounting fraud, which has so far resulted in restatements totaling more than $3 billion. The fraud, which was first uncovered in 2003, led to an SEC investigation in April 2004. (See Nortel: Financial Stuff Really Complex, SEC Pops In on Nortel, and Nortel Rattles Nerves.)

In addition to the restatements, Nortel is still expected to face an SEC fine of about $100 million. That's on top of $2.5 billion the company paid last year to settle class action lawsuits brought against it by investors. (See Nortel Faces SEC Fine, Says Report and Nortel Takes $2.5B Hit.)

A Nortel spokesman said that the company wouldn't comment on specific proceedings but that it was fully cooperating with the SEC. He also stressed that the company was not distracted by the proceeding.

"There's a new Nortel in place, with a new management team, new governance processes, and a strong and clear focus on the future," he said.

— Ryan Lawler, Reporter, Light Reading

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