SEC goes after former Nortel execs

The hits just keep coming for Nortel Networks Ltd., this time from the Securities and Exchange Commission. The SEC last week filed civil fraud charges against four former executives at the company for repeatedly engaging in accounting fraud to bridge gaps between the network-equipment maker’s true performance, its internal targets and Wall Street expectations.
Frank Dunn, Douglass Beatty, Michael Gollogly and MaryAnne Pahapill are all alleged to have engaged in this misconduct while working for Nortel between September 2000 and January 2004. During those turbulent years, Dunn served as CFO and CEO, Beatty served as controller and CFO, Gollogly served as controller, and Pahapill served as assistant controller and vice president of corporate reporting.
“The fraudulent conduct at issue here was egregious and long-running, Each of the defendants betrayed Nortel’s investors and their misconduct gave rise to billions of dollars in shareholder losses,” said Linda Thomsen, director of the SEC’s enforcement division.
“The defendants charged today all disregarded accounting principles and disclosure requirements designed to provide investors with a clear and accurate picture of a company’s performance. Investors were misled for extended periods of time about the health and stability of Nortel’s operations. Further, these defendants all received significant compensation, in some cases in the millions of dollars, while they were manipulating Nortel’s financial results,” said Christopher Conte, associate director of the division.
This all comes as the Toronto-based company is reeling from a recent shareholder lawsuit settlement of $2.4 billion in cash and stock stemming from the accounting errors, the recently announced resignation of its CFO, a forthcoming 9-percent cut in its workforce, and last week’s news that it once again will be restating its financial results for 2004, 2005 and the first nine months of 2006. The company has yet to accurately report financial reports for any year in the current decade.
The SEC filing alleges “Dunn, Beatty and Pahapill altered Nortel’s revenue recognition policies to accelerate revenue as needed to meet forecasts” from late 2000 through January 2001, and “Dunn, Beatty and Gollogly improperly established, maintained and released reserves to meet earnings targets, fabricate profits and pay performance-related bonuses” from July 2002 through June 2003. The SEC is seeking a “permanent injunction, civil monetary penalties, officer and director bars, and disgorgement with prejudgment interest against all four defendants.”