TORONTO – The former top brass at Nortel were found not guilty Monday of falsifying financial records as part of what the Crown alleged was a widespread, multimillion-dollar fraud at the fallen Canadian technology giant.
Ontario Superior Court Justice Frank Marrocco ruled that the Crown did not meet the burden of proof and dismissed charges against ex-CEO Frank Dunn, ex-CFO Douglas Beatty and ex-controller Michael Gollogly.
The three had pleaded not guilty of manipulating the balance sheets at Nortel Networks Corp., between 2002 to 2003.
“I am not satisfied beyond a reasonable doubt that Frank A. Dunn, Douglas C. Beatty and Michael J. Gollogly deliberately misrepresented the financial results of Nortel Networks Corporation,” Justice Marrocco said in his ruling.
“Therefore, I find each of them not guilty of counts one and two in this indictment.”
The verdict comes nearly a year after one of the largest criminal trials in Canada’s corporate history began.
The men, who each faced two counts of fraud, were accused of participating in a book-cooking scheme designed to trigger $12.8 million in bonuses and stocks for themselves at the once powerful Canadian technology giant. They were fired in 2004.
At its height, Nortel employed more than 90,000 workers worldwide and was worth nearly $300 billion. During the technology boom in 1999-2000, Nortel was one of Canada’s most valuable companies, with its shares peaking at $124.50.
In the years that followed the accounting scandal, the company’s shares nosedived to penny-stock status amid falling sales, large debts, and a gamut of legal issues.
In 2009, Nortel filed for bankruptcy in North America and Europe, shedding thousands of jobs.
Since then, it has sold its remaining businesses piecemeal to various buyers for more than to US$7.8 billion, one of largest asset sales in Canadian history.
At trial, Crown prosecutors alleged that Dunn, Beatty and Gollogly were complicit in releasing accruals — money set aside to cover future liabilities — onto Nortel’s balance sheets during quarters that needed to show the beleaguered telecom company was turning a profit when it wasn’t.
The Crown argued that these decisions by the accused, which were kept from the board of directors and the firm’s investors, generated return-to-profitability bonuses for themselves even though the company was in the red.
The defence said there was no evidence that the accused were involved in a conspiracy with countless accredited accountants from Nortel and outside auditors Deloitte & Touche.
Dunn’s lawyer also told the court that as CEO, his client approved the accounting at the telecom equipment maker but should not be held responsible if the figures given to him were inaccurate.
At the time, Dunn was preoccupied with trying to save the company and trusted that the balance sheets were correct when he approved them, argued the defence.
But the Crown charged, unsuccessfully, there was blatant falsification of financial records while the accused were in charge.
In one instance, the company had $189 million in excess accruals, but the Crown argued it only released $80 million so it could boost numbers during the first quarter of that year, while holding onto the rest for use in future quarters.
It was also alleged that a year earlier, Nortel’s own accountants were aware of $303 million in cash reserves that were held without a legitimate reason.