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Business  

Nortel VIPs accused of cooking books

One of the biggest trials in Canadian corporate history got under way Monday, with the Crown prosecutor beginning to lay out his case against three former Nortel Networks executives accused of falsifying financial reports.

Each of three accused men sat in separate rows of the court room with his lawyer. Former chief executive Frank Dunn, clad in a pinstripe suit, sat calmly in the front row throughout the afternoon hearing.

Dunn, former chief financial officer Douglas Beatty and former corporate controller Michael Gollogly each stood separately to enter clearly stated not guilty pleas to two charges before the prosecutor began his opening statements.

Crown attorney Robert Hubbard alleged the three men worked together to falsify Nortel's records and statements, to make it look more profitable than it was.

Hubbard said Nortel's financial statements were incorrect by "over half a billion Canadian dollars" in the first and second quarters of 2003 due to the alleged fraud.

The veteran criminal prosecutor argued it is clear that the way Nortel recorded its financial statements during that time was not in accordance with generally accepted accounting principles, though the executives signed off that they were.

"The only real question is, did you know it at the time?" Hubbard said, gesturing to the accused across the courtroom.

Hubbard said he aims to prove that the three men falsified the statements because bonuses for senior executives were linked to consecutive quarters of profitability.

In order to trigger those bonuses, the accused "had to juggle accounting to achieve those results," Hubbard said.

Even though Nortel had been losing millions of dollars for several years, it was still generating huge revenues from global sales of advanced technology and continued to reward employees with stock options linked to performance.

At the time, Nortel was still Canada's largest high-tech company, although it was no longer the stock-market star it had been a few years earlier.

Nortel has since gone out of business and its assets sold off in pieces to various buyers, even though it was at one time Canada's most valuable company, with more than 90,000 employees worldwide.

Dunn, Beatty and Gollogly were dismissed from the company in 2004, five years before Nortel was forced to seek court protection from its creditors. Many observers have suggested that Nortel's accounting scandal distracted its senior executives and prevented it from competing effectively against its rivals.

 

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