Nortel Gets Federal Subpoena

Nortel Networks Corp. (NYSE/Toronto: NT) announced this morning that it has received a Federal Grand Jury subpoena "for the production of certain documents, including financial statements and corporate personnel and accounting records, prepared during the period Jan. 1, 2000 to date" (see Nortel Receives Subpoena).

The company said the request for documents is part of an ongoing criminal investigation being conducted by the U.S. Attorney's Office for the Northern District of Texas, Dallas Division. Nortel officals said in a prepared statement that they will fully cooperate with the authorities.

Nortel's stock has lost more than half its value since former CEO Frank Dunn was fired "with cause" after an ongoing internal audit discovered the company had been overstating its net income (see Nortel Shares Fly South, Nortel Stock Dives on Dunn Downfall, and Nortel Fires CEO). The investigation into the accounting problems has also led to the departure of a number of other executives, including Nortel's former CFO, Douglas Beatty, and its former controller, Michael Gollogly. It has also resulted in an SEC investigation (see SEC Pops In on Nortel).

After all the news that's dropped on Nortel's accounting woes during the past few months, a federal investigation probably comes as no huge shock. Yet it's a signal that the accounting scandal could widen further, and that criminal charges could yet be filed against Nortel executives.

In early morning trading, Nortel's stock was down $0.19 (5%) to $3.61.

— R. Scott Raynovich, US Editor, Light Reading