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Winnipeg Free Press - PRINT EDITION

Ex-Nortel execs cooked books to get bonuses, court told

By: Linda Nguyen

Posted: 09/28/2012 1:00 AM | Comments: 0

TORONTO -- Three former Nortel executives manipulated financial records to reap millions in bonuses, keeping the now-insolvent tech firm's investors and the public in the dark, court heard Thursday during closing arguments at their high-profile fraud trial.

"It's a fraud on the public, that's the essence of the case against the accused," Crown attorney Robert Hubbard told the Ontario Superior Court.

Ex-CEO Frank Dunn, ex-CFO Douglas Beatty and ex-controller Michael Gollogly are on trial for two counts of fraud each. All three have pleaded not guilty.

The Crown alleges these top players "told lies" so they could continue with a "cookie-jar" accounting scheme that made it acceptable to dip into company reserves when quarterly financial targets couldn't be met.

The motivation, court heard, was to trigger $12.8 million in bonus payments for themselves -- $9.7 million in 2003 and $3.1 million in 2001 -- after showing an inaccurate return to profitability even though the Ottawa-based telecom company was struggling financially.

These deliberate efforts to conceal the "financial reality" of Nortel from the public amounts to fraud, said Hubbard.

"(The accused) were massaging the balance sheets for later," he said.

"It is only by maintaining a bloated balance sheet that the accused could engage in cookie-jar accounting by using excess accruals to supplement earnings."

Dunn, Beatty and Gollogly were fired from Nortel over the fraud allegations in 2004. Five years later, the telecom company declared bankruptcy in Canada and the U.S. At its height, Nortel employed 90,000 people worldwide and was worth nearly $300 billion.

Ontario Superior Justice Frank Marrocco was told it doesn't matter whether the executives explicitly told employees to fudge the financial records. Everyone was already working under a "context" or culture dating back to the 1980s that made it acceptable to do so, the Crown said.

It was an "everybody knows what needs to be done" culture, said Hubbard.

"In this backdrop, in this culture, when you have forecasts... you don't need instruction," he said.

"Stretch targets were given and the only way to meet them, with the financial reality of Nortel... was through excess accruals."

-- The Canadian Press

Republished from the Winnipeg Free Press print edition September 28, 2012 B5

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