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The SEC Comes Down on Four Former Execs
By Mark Evans | September 13, 2007
It has taken awhile but the U.S. Securities and Exchange Commission has come down on some of the other Nortel executives who were allegedly involved in cooking the books to trigger a lucrative bonus structure.
In filing civil fraud charges, the SEC named Douglas Hamilton, Craig Johnson, James Kinney (VP, finance for and Kenneth Taylor, who are all ex-VP of finance. These charges come in the wake of similar charges against ex-CEO Frank Dunn, ex-CFO Doug Beatthy and ex-controller Michael Gollogly.
The SEC alleges from the middle of 2002 to January 2003, Hamilton, Johnson, Kinney and Taylor “did not immediately release excess reserves” from their business units as required under GAAP. Instead, they “maintained them for earnings management purposes”.
In the latest charges, the commission alleges that from the second half of 2002 through January 2003, Hamilton, Johnson, Kinney and Taylor “all determined that their business units held tens of millions of dollars in excess reserves.” This decision caused Nortel to post a lost in Q4 2002 rather than a profit.
The SEC’s filing is an amendment of an original complaint filed on March 12, 2007 in which the SEC alleged that “Dunn, Beatty and Gollogly learned that the company was carrying massive amounts of excess reserves and then directed the alleged reserve manipulations to meet earnings targets, fabricate profits and pay performance-related bonuses”. The SEC also alleged that Dunn, Beatty and ex-assistant controller MaryAnne Pahapill “altered Nortel’s revenue recognition policies from late 2000 through January 2001 to accelerate revenue to meet publicly announced revenue targets.”
According to AP, the SEC alleges that Dunn, Beatty and Gollogly directed the improper company-wide release of about $500 million of excess reserves in the first and second quarters of 2003 to inflate earnings and pay bonuses.
The SEC’s 74-page complaint with all the juicy allegations can be found here.
Topics: Legal Issues |
September 13th, 2007 at 11:41 pm
Why don’t you mention they are FORMER Nortel execs ? Like anyone else, your blog’s credibility is affected every time you post something that doesn’t state the facts.
Despite the new management’s lack of a clear vision or strategy, as a shareholder, I think they have done a damn good job of cleaning house and will continue to do so until non-performers are weeded out.
Mark - if your a Canadian you need Nortel to succeed so please be more factual. It will also help your blog in the longer term !
September 14th, 2007 at 12:57 am
I think this is unjust. With what we now know about Nortel’s financial reporting tools, and given the % variance in question, how could these individuals have been certain about any numbers to that degree of detail? Didn’t it take a few years and about $500M of cost for the replacement teams to get it right after these individuals were let go? I think it all boils down to intent. I believe that these are high integrity individuals in line jobs who were doing their best with the tools they had and the information at hand to deal with turbulent post-crash markets.
September 14th, 2007 at 7:53 am
Casual Observer: Fair enough point, although I do mention in the post itself they are all ex-VPs of finance.