RCMP charge former Nortel executives

RCMP charge former Nortel executives

Thursday, June 19, 2008
The RCMP Thursday laid criminal charges against three former Nortel Networks Corp. executives in the once-mighty telecommunications company's accounting scandal.

Former chief executive Frank Dunn, former chief financial officer Douglas Beatty and former corporate controller Michael Gollogly were arrested Thursday, the RCMP said.

Mr. Dunn, 54, Mr. Beatty, 53, and Mr. Gollogly, 49, who were fired by the company in April, 2004, arrived in court in Newmarket, Ont., Thursday morning for a bail hearing.

The charges include fraud affecting public market, falsification of books and documents and false prospectus, the RCMP said in a statement.

"I'm very happy that these investigations have come to a culmination now," Kevin Harrison, the officer in charge of the RCMP's Toronto area Integrated Market Enforcement Team, told the Globe and Mail.

Asked if the charges send a message, he said: “There's a deterrent message with respect to rules that govern the capital markets. And those that look to breach those know there is someone out there that will be looking at them, and looking to identify them, prosecute them and ultimately incarcerate them.

"There's been some criticism of our program and certainly [the arrests] send a message to the public that our program is alive and well."

The RCMP alleged Mr. Dunn, Mr. Beatty and Mr. Gollogly fraudulently misstated Nortel's results. Among the accusations are that the three “made false entries and omitted materials particular in the books and documents in regards to the financial results of Nortel.”

Each of the former executives faces seven counts.

Police further alleged the three “circulated or published a statement or an account ... knowing that it was false in a material particular, with the intent to deceive or defraud the members, shareholders or creditors of Nortel Networks Corp.”

The RCMP said all charges relate to the period between Jan. 1, 2002, and June 30, 2003, and allege that Nortel's financial statements during that time frame were misstated. The period in question included all of 2002 and the first and second quarters of 2003.

None of the men charged commented immediately on Thursday. In documents filed last November with the U.S. Securities and Exchange Commission, Mr. Dunn and Mr. Beatty rejected SEC allegations in civil fraud charges.

Mr. Dunn said any accounting issues under his watch were simply mistakes, rather than fraud, and that “in this challenging business environment, Frank Dunn rescued the company by implementing a painful and massive company-wide restructuring plan.”

Nortel said in a statement that it was neither charged nor a target of the probe, and that it has cooperated fully with the RCMP.

“Nortel is rebuilding a great Canadian company while upholding the highest standards of integrity and ethics,” the company said in a statement. “... Nortel and its employees are highly determined to compete and win in the marketplace and today's announcement by the RCMP does not distract the company from the work ahead.”

The RCMP said the force was aided in the probe by the Ontario Securities Commission, the FBI in Dallas, the SEC and the company.

The charges against the former executives came as ex-officials of another company, Royal Group Technologies Ltd., were also charged after a lengthy investigation.

The RCMP's Mr. Harrison said 50 people worked on both cases. The Nortel case alone involved more than 20 million documents, he said.

“These files are very complex in nature,” he said. “Both files had international components to them. That massive amount of material certainly takes some time to go through it, review it and assess it.”

In a statement, the RCMP said: “Protecting and enhancing Canada's economic integrity is one of the RCMP's strategic priorities. This investigation demonstrates that although capital market investigations can be lengthy and complex, they are most effective when an integrated approach is used from the outset.”

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