Monday, October 15, 2007
The SEC today filed civil fraud charges against Nortel Networks alleging that it engaged in accounting fraud from 2000 through 2003 to close gaps between its true performance, its internal targets and Wall Street expectations. Nortel has agreed to settle the action by consenting to be permanently enjoined from violating the antifraud, reporting, books and records and internal control provisions of the federal securities laws and by paying a $35 million civil penalty, which the Commission will seek to place in a Fair Fund for distribution to affected shareholders. Nortel also has agreed to report periodically to the Commission's staff on its progress in implementing remedial measures and resolving an outstanding material weakness over its revenue recognition procedures. The SEC, perhaps as part of its policy to make penalty amounts more transparent, characterized the fraud as "long-running, intentional and pervasive."
In settling the matter, the SEC also acknowledged Nortel's substantial remedial efforts and cooperation. After Nortel announced its first restatement, the Audit Committee of Nortel's Board of Directors launched an independent investigation which later uncovered the improper accounting. Nortel's Board took extensive remedial action that included promptly terminating employees responsible for the wrongdoing, restating its financial statements four times over four years, replacing its senior management, and instituting a comprehensive remediation program designed to ensure proper accounting and reporting practices. Nortel also shared the results of its independent investigation with the Commission.
The SEC previously announced the filing of civil fraud charges against a number of former Nortell officers, including its former CEO Frank Dunn, former CFO Douglas Beatty, and former Controller Michael Gollogly.