It’s taken awhile but the U.S. Securities and Exchange Commission filed civil charges today against four former senior executives of Nortel Networks Corp. – CEO Frank Dunn, CFO Douglas Beatty, controller Michael Gollogly and assistant controller MaryAnne Pahapill – for their alleged involvement in cooking the books to trigger a lucrative bonus scheme. The SEC is seeking a permanent injunction, civil monetary penalties, officer and director bars and disgorgement plus prejudgment interest against all four defendants.
“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 Division of Enforcement. “The action we take today sends a strong message that officers of U.S.-filing foreign corporations will be held to the same standards of accountability that are required of all participants in the U.S. financial markets.”
Here are some excerpts from the SEC press release:
The complaint specifically alleges the following.
* In late 2000, Beatty and Pahapill implemented changes to Nortel’s revenue recognition policies that violated US GAAP, specifically to pull forward revenue to meet publicly announced revenue targets. However, because their efforts pulled in more revenue than needed to meet those targets, Dunn, Beatty and Pahapill selectively reversed certain revenue entries during the 2000 year-end closing process. These actions improperly boosted Nortel’s fourth quarter and fiscal 2000 revenue by over $1 billion, while at the same time allowing the Company to meet, but not exceed, market expectations.
* In November 2002, Dunn, Beatty and Gollogly learned that Nortel was carrying over $300 million in excess reserves. Dunn, Beatty and Gollogly did not release these excess reserves into income as required under US GAAP. Instead, they concealed their existence and maintained them for later use. Further, in early January 2003, Beatty, Dunn and Gollogly directed the establishment of yet another $151 million in unnecessary reserves during the 2002 year-end closing process to avoid posting a profit and paying bonuses earlier than Dunn had predicted publicly. These reserve manipulations erased Nortel’s pro forma profit for the fourth quarter of 2002 and caused it to report a loss instead.
* In the first and second quarters of 2003, Dunn, Beatty and Gollogly directed the release of at least $490 million of excess reserves specifically to boost earnings, fabricate profits and pay bonuses. These efforts turned Nortel’s first quarter 2003 loss into a reported profit under US GAAP, which allowed Dunn to claim that he had brought Nortel to profitability a quarter ahead of schedule. In the second quarter of 2003, their efforts largely erased Nortel’s quarterly loss and generated a pro forma profit. In both quarters, Nortel posted sufficient earnings to pay tens of millions of dollars in so-called “return to profitability” bonuses, largely to a select group of senior managers.
* During the second half of 2003, Dunn and Beatty repeatedly misled investors as to why Nortel was conducting a purportedly “comprehensive review” of its assets and liabilities, which resulted in Nortel’s restatement of approximately $948 million in liabilities in November 2003. Dunn and Beatty falsely represented to the public that the restatement was caused solely by internal control mistakes. In reality, Nortel’s first restatement was necessitated by the intentional improper handling of reserves which occurred throughout Nortel for several years, and the first restatement effort was sharply limited to avoid uncovering Dunn, Beatty and Gollogly’s earnings management activities.
Don’t forget FD was CFO under Roth who walked away with 100 million US. Was there malfeasance when Roth was running things too? How exactly was 490 million hidden from them? Where did the 490 million come from and when was the slush fund created? Who else knew about their “rainy day fund”?
I am not at all convinced that the whole gang of crooks has been identified. I think there are others still in different LoBs that have direct involvement in this are still there. Further, I think that there needs to be a very thorough examination of the members of the BoD and their potential involvement in this. I would like to see the whole thread pulled.
It looks to me like nortel was a money printing machine for some well connected pirates for a l-o-n-g time. The gang of three was simply so greedy and inept that they got caught.
Observer
Even Owens admitted before he abrupt departure (and before they paid a premium to settle a case against for a first time CEO who is no stranger to fraud with his previous employer who passed him by) that the criminals were “difficult to find”. In other words, the frauds are still there. Even the media indicated they were still there “remaining silent under their counsel’s advice”.
Nortel still operates and trades after this CEO threatened shareholders to settle or they risk getting nothing.
Now megalomaniac Mike doesn’t want to jeopardize size of company for profit and his track record due to axe-cutting was the reason he was hired to begin with.
Dunn today bellyaches how it took so long for the wheels of justice to turn or why Canada’s soft inquisition lacking teeth isn’t good enough for the US authorities.
Even the plea bargained board got 3 years to repay their ill gotten bonuses like they blew them in Vegas already or something, Nortel spent almost a cool billion defending 5 of them, some board members still sit on the audit committee and we witness lottery pay practices as they lose money. They even advocated keeping bonuses at a shareholders meeting which they did to this very day for a year worse every time counted and avoided like the plague in the most current bout of revisions moving money again.
A few handful departing by this level of bonus happy mass orchestration is hardy sufficient and evident by their ongoing chronic overstating, never under, contradictions, and shear hype while selling assets to beef numbers and look like a player to paying lotteries.
CFO and auditors depart, and Nortel maintained reluctance to chase past officers resulting in a derivative class action. We heard more from the regulating authorities than Nortel in chasing Dunn/past officers.
Even after the traditional response of rolling over on those they held close relationships with that misled them, or holding over 80 evangelicalized bored meetings to claim no flies on us for the obvious red flag of immediate cash bonuses than traditional stock options they approved and received. If they did not know, they sure should have. Sure the board is implicated, many have said so in many commentaries. The dream team that the green teem of puppets replaced almost all of them in the theatrics.
Look how so little has changed with fraud and post settlement downplaying further inquiry into revisions that doubled initial estimates with this new CEO claiming work was already done while these revisions were brand new. Chronic overstating never under, the shares rising after a reverse split that usually tanks over 75% of normal stocks, still trading after defrauding so many for cash bonuses they still keep, etc., this would have never happened in the U.S. who have better laws against open season on the investor. It is endless… Enron or Worldcom should have been so lucky to have been extended such great luxury and liberties this long.
SEC Sues Ex-Nortel Executives
It’s taken awhile but the U.S. Securities and Exchange Commission filed civil charges today against four former senior executives of Nortel Networks Corp. – CEO Frank Dunn, CFO Douglas Beatty, controller Michael Gollogly and assistant controller MaryAnne Pahapill – for their alleged involvement in cooking the books to trigger a lucrative bonus scheme. The SEC is seeking a permanent injunction, civil monetary penalties, officer and director bars and disgorgement plus prejudgment interest against all four defendants.
“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 Division of Enforcement. “The action we take today sends a strong message that officers of U.S.-filing foreign corporations will be held to the same standards of accountability that are required of all participants in the U.S. financial markets.”
Here are some excerpts from the SEC press release:
The complaint specifically alleges the following.
* In late 2000, Beatty and Pahapill implemented changes to Nortel’s revenue recognition policies that violated US GAAP, specifically to pull forward revenue to meet publicly announced revenue targets. However, because their efforts pulled in more revenue than needed to meet those targets, Dunn, Beatty and Pahapill selectively reversed certain revenue entries during the 2000 year-end closing process. These actions improperly boosted Nortel’s fourth quarter and fiscal 2000 revenue by over $1 billion, while at the same time allowing the Company to meet, but not exceed, market expectations.
* In November 2002, Dunn, Beatty and Gollogly learned that Nortel was carrying over $300 million in excess reserves. Dunn, Beatty and Gollogly did not release these excess reserves into income as required under US GAAP. Instead, they concealed their existence and maintained them for later use. Further, in early January 2003, Beatty, Dunn and Gollogly directed the establishment of yet another $151 million in unnecessary reserves during the 2002 year-end closing process to avoid posting a profit and paying bonuses earlier than Dunn had predicted publicly. These reserve manipulations erased Nortel’s pro forma profit for the fourth quarter of 2002 and caused it to report a loss instead.
* In the first and second quarters of 2003, Dunn, Beatty and Gollogly directed the release of at least $490 million of excess reserves specifically to boost earnings, fabricate profits and pay bonuses. These efforts turned Nortel’s first quarter 2003 loss into a reported profit under US GAAP, which allowed Dunn to claim that he had brought Nortel to profitability a quarter ahead of schedule. In the second quarter of 2003, their efforts largely erased Nortel’s quarterly loss and generated a pro forma profit. In both quarters, Nortel posted sufficient earnings to pay tens of millions of dollars in so-called “return to profitability” bonuses, largely to a select group of senior managers.
* During the second half of 2003, Dunn and Beatty repeatedly misled investors as to why Nortel was conducting a purportedly “comprehensive review” of its assets and liabilities, which resulted in Nortel’s restatement of approximately $948 million in liabilities in November 2003. Dunn and Beatty falsely represented to the public that the restatement was caused solely by internal control mistakes. In reality, Nortel’s first restatement was necessitated by the intentional improper handling of reserves which occurred throughout Nortel for several years, and the first restatement effort was sharply limited to avoid uncovering Dunn, Beatty and Gollogly’s earnings management activities.
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