WASHINGTON-Nortel Network Corp.’s mounting accounting problems continued last week, as a New York law firm announced it was investigating the Canadian telecom equipment giant for possible violations of the federal statute governing company investments in employee retirement benefit plans.
Wechsler Harwood L.L.P. said its investigation, which comes on top of U.S. and Canadian probes and a slew of class-action lawsuits in the U.S. District Court for the Southern District of New York, focuses on whether Nortel and certain retirement plan administrators breached their fiduciary duties by negligently misrepresenting and negligently failing to disclose material facts to the plan and the plan participants in connection with the management of the plan’s assets.
Nortel saw its stock take a hit the past week after a front-page Wall Street Journal story July 2 reported that company accounting was manipulated to exaggerate profits in 2003. Senior executives, according to the article, were rewarded with bonuses totaling millions of dollars.
Nortel has shaken investor confidence and angered shareholders by having to restate earnings in recent years. In April, several top Nortel executives were fired.
Nortel said it is cooperating with probes by the Justice Department, the Securities and Exchange Commission and the Ontario Securities Commission. The company said it also is scrutinizing itself and may attempt to reclaim bonuses.
“The independent review being undertaken by the Nortel Networks Audit Committee is continuing and is focused on management’s practices regarding accruals and provisions,” said Nortel. “Following the completion of the independent review, the board of directors will review payments under our bonus plans to determine what actions are appropriate. To the extent the board determines bonuses have been paid to individuals who have acted improperly, it fully intends to seek recovery.”
