Bloomberg News

Judge Dismisses Cases Against Former Nortel Executives

January 14, 2013

Former Nortel CEO Frank Dunn

Former Nortel Networks Corp. President Frank Dunn, seen in a Dec. 4, 2003 file photo. Photographer: Norm Betts/Bloomberg

An Ontario judge dismissed a case against three former Nortel Networks (NRTLQ:US) Corp. executives who were charged with accounting fraud at what was once North America’s largest telephone-equipment maker before its collapse in 2009.

Judge Frank Marrocco said the burden of proof was not met in fraud charges against Former Chief Executive Officer Frank Dunn, former Chief Financial Officer Douglas Beatty and former Controller Michael Gollogly. Marrocco made the ruling today in Toronto.

“I am not satisfied beyond a reasonable doubt” that the three executives “deliberately misrepresented the financial results of Nortel Networks,” Marrocco wrote in his 141-page ruling.

Dunn, Beatty and Gollogly were alleged to have misstated financial results from 2000 to 2004, allowing them to pocket millions in bonuses. All three pleaded not guilty to two counts of fraud at the trial that began a year ago.

The charges made in 2008 against the Nortel executives concern earnings statements showing the Mississauga, Ontario- based company returned to profit in 2003 following losses in 2001 and 2002 amid the global technology stock crash. Nortel’s board fired the executives in 2004 after an internal investigation of the company’s financial reporting. It then restated earnings back to 1999.

‘Complete Vindication’

Greg Lafontaine, Beatty’s lawyer, said the decision was “fantastic.” The verdict “was bang on with what the evidence dictated,” he told reporters outside the courthouse. Beatty, standing next to his lawyer, smiled but said nothing. Beatty will now be “moving on,” Lafontaine said.

“This represents a complete vindication for Mr. Dunn and a fundamental rejection of the Crown’s allegations against him,” his lawyer David Porter told reporters outside the courthouse. “We are very pleased with this decision.”

The case hinged on whether the three men were guilty of misrepresenting Nortel’s earnings so as to trigger automatic bonuses related to performance targets. Marrocco said he found a memo by Nortel’s independent auditor Deloitte & Touche LLP into the matter to be “persuasive.”

“The evidence falls far short of proving that the accused, either individually or collectively, attempted to frustrate the Comprehensive Balance Sheet Review or the first restatement of Nortel‘s previously-published financial results,’’ Marrocco wrote in his decision.

Technology Cornerstone

Nortel, once a cornerstone of the Canadian technology industry that accounted for a third of the country’s benchmark stock index, filed for bankruptcy in January 2009 after reporting $11.6 billion in consolidated assets against $11.8 billion in debt as of Sept. 30, 2008.

The company has since sold its business units for at least $7.5 billion, including the $4.5 billion sale in July 2011 of its patent portfolio to a group that includes Apple Inc. (AAPL:US) and Microsoft Corp. (MSFT:US)

Marrocco is the former prosecuting attorney in Canada’s biggest stock-market scandal, the Bre-X Minerals Ltd. gold- discovery hoax. In that case, the only executive brought to trial was acquitted in 2007.

The case is between Her Majesty the Queen and Dunn, Beatty and Gollogly, Ontario Superior Court of Justice (Toronto).

To contact the reporter on this story: Hugo Miller in Toronto at hugomiller@bloomberg.net

To contact the editor responsible for this story: David Scanlan at dscanlan@bloomberg.net


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