It may take months before the allegations against Frank Dunn, Doug Beatty and Michael Gollogy are proved either way but the chief prosecutor, Robert Hubbard, opened his arguments by making it clear that the Nortel Three manipulated Nortel’s books to turn a loss into a profit during the second quarter of 2003.

Hubbard also claimed excess accruals were shifted from Nortel’s income statement in avoid a profit in late-2002, which would have triggered bonuses to employees but not senior executives.

At the core of the allegations against the Nortel Three is they cooked the books to trigger a $5-million bonus plan. Dunn, Beatty and Gollogy were fired “for cause” in 2004.

Dunn was replaced by Bill Owens, a former U.S. Navy Admiral, with little telecom experience. He handed the ball to Mike “Mike Z.” Zafirovski who led the company into bankruptcy protection and, eventually, a massive asset liquidation.

For more on the trial, here are some links:

- Nortel executives shifted accounting funds to achieve results (Globe & Mail)

- Crown Likens Nortel Fraud to widespread Sudoku (Montreal Gazette)

- In search of one material lie (Ottawa Citizen)

As much as the Nortel Three may have allegedly cooked the books to trigger a bonus program, it’s a small chapter in a tragic story about how a world-class telecom supplier found itself become an industry laggard before it tumbled into bankruptcy protection and sold off its assets to a hungry gr0up of buyers.

As much as it would be easy to blame Dunn for Nortel’s financial troubles, his successors – Bill Owens and Mike Zafirovski – deserve as much scrutiny and blame for the company’s ultimate demise. A series of bad decisions, strategic moves that should have happened, and bad timing cut Nortel down at the knees.

So while the trial will attract a lot of attention, there’s a much bigger story that should not be forgotten.

Describing them as “Unemployed, and unemployable”, Bagnell said Dunn, for example, has given $2.1-million to his law firm, McCarthy Tetrault. Of that amount, at least $700,000 borrowed from seven former Nortel colleagues, including ex-Nortel CEO John Roth and former chief marketing officer Ian Craig.

According to the Toronto Star, the Justice Frank Marrocco is expected to rule Monday on a defense motion asking for more details about the fraud allegations. If he accepts the motion, the trial’s opening remarks would be delayed.

Bagnell suggests that Dunn, Beatty or Gollogly are expected to take the stand at the trial.

The Crown said the charges were eliminated because they were similar to other charges. The Nortel Three will stay face two charges each of fraud and one count of falsifying financial documents. The charges were laid after Dunn, Beaty and Gollogy allegedly carried out a scheme to trigger lucrative financial bonuses.

If indicted, the Nortel Three could stay faces up to 14 years in jail.

While the trial could last awhile, one of the most interesting elements will be the public appearances of the Nortel Three, who have kept a low profile since they were cut loose by Nortel.

Dunn, the bean-counter who became CEO after John Roth left Nortel, has not been in the spotlight since he sold his 10,600 sq. foot “dream house” in 2008. The house, located on 1.6 acres in Oakville, Ont., featured six bedrooms, a three-car garage and 56 metres of shoreline.

For more on the pre-trial activity, check out this story in today’s Globe & Mail.

The trial is to begin Monday in Ontario Superior Court, but defence lawyers have requested a pre-trial hearing on Thursday to seek detailed disclosure from the Crown of “particulars” in the case, which refers to a detailed account of what is being alleged in the case.

http://www.theglobeandmail.com/globe-investor/crown-expected-to-amend-charges-facing-ex-nortel-execs/article2298058/?utm_medium=Feeds%3A%20RSS%2FAtom&utm_source=Home&utm_content=2298058

The National Post’s Drew Hasselback provides a good summary of the charges, which were laid after Dunn, Gollogy and Beatty allegedly cooked the books to trigger bonuses.

Pre-trial hearings started on Thursday in downtown Toronto.

According to the Toronto Star, Justice Frank Marrocco is scheduled to preside Thursday over motions, including those by the defence, in an open-court hearing at the Superior Court of Justice of Ontario. A trial before the justice starts on Jan.16.

The legal proceedings are focused on how Dunn, Nortel’s ex-CEO, Beatty (the ex-CFO) and Gollogy, the ex-controller, allegedly cooked the books to trigger large bonuses.

The charges against them includes two counts of fraud affecting a public market, two counts of falsifying books and documents and three counts of issuing a materially wrong prospectus.

With a mountain of documentation already filed, it will be fascinating to see if what really happened at Nortel emerges.

You have to remember that Nortel was scrambling to recover following the crash of the dot-com and telecom markets in 2001. After Dunn replaced John Roth as CEO, Nortel made a remarkable return to profitability.

But things went pear-shaped in March 2004 when Nortel announced it would delay filing audited financial statements for the preceding year.

After Dunn was fired “with cause”, he was replaced by ex-U.S. Navy Admiral Bill Owens despite his lack of telecom experience. Owens was subsequently replaced by Mike Zafirovski, who led the company down the path into bankruptcy protection and a massive asset sale.

While it’s left to be seen whether Dunn, Beatty and Gollogy will be found guilty, the bigger story remains the sad and painful demise of Canada’s flagship telecom company.

The court orders also established bidding procedures for an auction that will let other qualified bidders to submit higher or better offers, as required under Section 363 of the U.S. Bankruptcy Code. These bids must be submitted by June 13, 2011, subject to any permitted extensions.The auction is scheduled for June 20, 2011. Following completion of the bidding process, the sale will require final approval of the U.S. and Canadian courts.

Among the companies expected to bid for the patents are Research in Motion, which is interested in Nortel’s LTE patents.

Without the agreement all medical and dental coverage will stop on Wednesday, and Nortel’s pension plans could be summarily wound-up. Terminated employees who received no severance will lose a one-time payment of $3,000.

In a press release, the NRPC said:

“Judge Geoffrey Morawetz ruled in favour of Nortel’s junk bondholders, who had claimed in court that a clause in the proposed Agreement was unfair to their interests. The clause preserved the right of Nortel’s former workers to claim preferred status if Canada’s bankruptcy laws were to be amended prior to Nortel’s final liquidation.

NRPC is also asking the government of Ontario to establish a Pension Agency, in line with the recommendations of the 2008 Ontario Expert Commission on Pensions. The Agency would take over and run abandoned pension plans instead of using the remaining assets to buy annuities for retirees. The Nortel pension fund is significantly underfinanced and winding-up the plan would further reduce pensioners’ incomes.”

Judge Geoffrey Morawetz rejected the deal, which would have extended health and long-term disability benefits until September and given each employee a $3,000 severance payment.

The deal included a controversial clause that would let former employees take advantage of any future changes to federal bankruptcy laws to increase their benefits.

For more, check out this CBC story.

According to BusinessWeek, acting U.S. Trustee Roberta DeAngelis is objecting to the $55.6 million of retention and incentive payments for 866 employees, describing them as “extraordinary”.

The payments are part of a bonus structure proposed by Nortel last month that could see as much as $92.4-million set aside for 1,475 employees. These employees are running Nortel’s government services and transition units.