TORONTO - Three former Nortel executives accused of orchestrating a widespread multimillion-dollar fraud will learn their fate Monday, nearly a year after one of the largest criminal trials in Canada's corporate history began.
Ontario Superior Court Justice Frank Marrocco is set to rule on whether ex-CEO Frank Dunn, ex-CFO Douglas Beatty and ex-controller Michael Gollogly manipulated financial statements at Nortel Networks Corp., between 2002 to 2003.
The men, who each face two counts of fraud, are accused of participating in a book-cooking scheme designed to trigger $12.8 million in bonuses and stocks for themselves at the once powerful Canadian technology giant.
The accused, who were fired in 2004, have all pleaded not guilty to the charges.
If convicted, each could face up to 10 years in prison.
Justice Marrocco was the lead prosecutor in the Bre-X Securities case, the largest corporate fraud case in Canadian history, and his verdict will send a message through both legal and financial circles, says one expert observer.
Darren Henderson, an assistant professor of managerial accounting and control at Richard Ivey School of Business at Western University, says that since the fall of Nortel, securities regulations have been tightened, particularly to ensure that top-ranking executives at major corporations are held more accountable when signing off on financial statements.
Despite this, Canada is still seen as soft on white-collar crimes, especially when compared to the stiff sentences handed out in the U.S. during the Enron scandal.
"When you look at white collar crime, there is always going to be incentives for manipulating financial statements," he said.
"There is a direct financial incentive of increasing the value of your sales, getting a bigger bonus or keeping your job. And what has to counteract that is a disincentive or deterrent from the perspective of potential litigation and potential to go to prison."
At its height, the Ottawa-based firm employed more than 90,000 workers worldwide and was worth nearly $300 billion. During the technology boom in 1999-2000, Nortel was one of Canada's most valuable companies, with its shares peaking at $124.50.
In the years that followed the accounting scandal, the company's shares nosedived to penny-stock status amid falling sales, large debts, and a gamut of legal issues.
In 2009, Nortel filed for bankruptcy in North America and Europe, shedding thousands of jobs.
At trial, crown prosecutors alleged that Dunn, Beatty and Gollogly were complicit in releasing accurals, money set aside to cover future liabilities, onto Nortel's balance sheets during quarters that needed to show the beleaguered telecom company was turning a profit when it wasn't.
The Crown argued that these decisions by the accused, which were kept from the board of directors and the firm's investors, generated return-to-profitability bonuses for themselves even though the company was in the red.
The defence says there is no evidence that the accused were involved in a conspiracy with countless accredited accountants from Nortel and outside auditors Deloitte & Touche.
Dunn's lawyer also told the court that as CEO, his client approved the accounting at the telecom equipment maker but should not be held responsible if the figures given to him were inaccurate.
At the time, Dunn was preoccupied with trying to save the company and trusted that the balance sheets were correct when he approved them, argued the defence.
But the Crown charged that there were blatant falsification of financial records while the accused were in charge.