# Finally, the "crooks" at Nortel brought to justice



## carverman (Nov 8, 2010)

Heard in the news today, that the trial of 3 former execs of Nortel (Frank Dunn CEEO) and two others for FRAUD is starting today in Toronto.

http://www.nytimes.com/2012/01/16/business/former-nortel-executives-fraud-trial-to-begin.html

Kevin O'Leary (O'leary-Lang exchange) and CEO of O'Leary funds, in a telephone interview stated..(I'm paraphrasing here, from what I remember from the CBC morning news telephone interview with Heather Hiscox)

Kevin O'Leary: " I saw this happening very early in Nortel's slide and divested myself of their stock. 
They had raised 440 BILLION of value and had nothing to show for it at the time! Where did it all go?

A lot of investors who placed their trust in this once BLUE CHIP stock were taken to the cleaners when the stock plunged in value, some had well over 5% of their holdings invested, and some hedgefunds as much as 20%... lost their "shirts" when the stock value plunged and collapsed. 

If you are a careful investor and do diligence on the performance and cash flow, of the company, you should NEVER invest more than 5% of your stock holdings in ONE SINGLE company..otherwise you may be setting yourself up..diversity is the key!"
<end of paraphrased telephone interview on CBC news>

Carver sez:
So... finally the RATs that killed the golden goose of Canadian innovation are being brought to justice! I hope they all get lengthy prison sentences here, like they would if tried and convicted in the US..where they had subsidiaries and 
defrauded US investors of Billions! Canada has to set a precedence in their conviction, so this doesn't happen to the
unsuspecting public in the future. It all started to unravel with John Roth, who took the company from profitabilty
to insolvency and then retired quickly when he saw the writing on the wall..cashing in several million in stock options
just before the stock started to plunge from $100 down to nothing. He was investigated for insider trading by
the SEC, but he was clever enough to conceal his actions and the SEC couldn't pin anything on him at the time.

From what I remember (and this was after I retired), the top execs decided to "cook the books" and make Nortels sales/profit forecast much better than it was in order to raise funds for their "peter to pay paul" schemes at that point, since sales had dropped off drastically. 

Both John Roth (former CEO before CFO Frank Dunn took over the reins) and Frank Dunn..skimmed off "milllions" to build
fancy estates (multimillion dollar houses) in Orangeville and Mississauga. Perhaps they should forefeit those homes
to be sold to pay back a pitance to the investors that were SCAMMED! 

While it may have been a well thought out attempt to stop the arterial bleeding and eventual death of the company from that point on..but in doing so they DEFRAUDED everyone in a big way ..and in turn netted themselves very lucrative 
5 MILLION bonuses (each) besides their overinflated pay in excess of a million dollars a year! 

Human greed in one of it's finest examples!

Trial continues for at least 6 months!


----------



## carverman (Nov 8, 2010)

Further to CBC news reports, the accused 3 execs who pleaded not guilty
to the charges are having their lawyers tell the crown prosecutor to produce
documents as proof that fraud was intentionally perpretrated on the investors.

of course, there are 23 million pages of documents for the prosecution to go
through, so the judge today will rule if there is enough incriminating evidence
to proceed with the trial, or delay the trial until more evidence is uncovered.

According to the accused lawyers, the financial statements in 2002,2003
were done according to GAAP accounting practices and signed off
by Nortel's auditors Deloitte and Touche who approved the initial "cooked"
financial statement and the subsequent restating of the financial statement
that took 4 attempts. 

http://en.wikipedia.org/wiki/Generally_Accepted_Accounting_Principles_(Canada)

So the question is whether..the demise of Nortel was due to bad accounting
or inept management and how much did Deliotte and Touche know about
Nortel's REAL financial position when they approved the release of Nortel's
financial statement in 2003. 

The execs based on their bonus program had a vested interest to state
profits where losses had occurred. One was purported to have earned
a 10 million bonus on restated (non existant) profits.


----------



## Brenner (Jan 17, 2012)

I blame it on inept management and slack accountants. 

D&T definitely failed here. But the scarier notion is that probably any of the big accounting firms would have done the same. Auditing in general is broken and even though Nortel happened long ago it hasn't been fixed. Just look at Yellow Pages and how fast it dropped from $6 to a penny stock, and that suddenly they are writing off BILLIONS in goodwill which sat on the books for years. 

The accounting environment we have today is mostly a fraud. It gives the illusion of reliable financial statements because without it the financial system couldn't operate. But make no mistake it only does a good enough job to keep that illusion going.


----------



## carverman (Nov 8, 2010)

Prosecution states that the 3 "alleged crooks" set themselves up to reap huge bonuses they weren't entitled too.."setting up a big cookie jar" and then helping themselves to that. 
I would call that embezzlement..they cooked the books, diddled with the financial records (approved by the auditors),
to fool investors out of hundreds of millions, while they helped themselves to millions..because their bonues
were based on performance of the company.

Here's an example of what can go wrong with a Blue Chip stock..if you put all your financial investment eggs
into one basket....


----------



## LondonHomes (Dec 29, 2010)

I'm glad that charges have finally been laid.

It will be interesting to see what sort of time these guys get if any.


----------



## spirit (May 9, 2009)

*Old saying*

Ok boys, Time to round up the others and clean up this mess. Don't forget to bring the rope.


----------



## carverman (Nov 8, 2010)

Brenner said:


> I blame it on inept management and slack accountants.
> 
> D&T definitely failed here. *But the scarier notion is that probably any of the big accounting firms would have done the same. Auditing in general is broken and even though Nortel happened long ago it hasn't been fixed*. Just look at Yellow Pages and how fast it dropped from $6 to a penny stock, and that suddenly they are writing off BILLIONS in goodwill which sat on the books for years.
> 
> *The accounting environment we have today is mostly a fraud.* It gives the illusion of reliable financial statements because without it the financial system couldn't operate. But make no mistake it only does a good enough job to keep that illusion going.



That is scary! When the public and investors can't trust the financial statements of a company because the auditors jiust go along with whatever the company execs want to put down..to feather their own nests...it's perhaps time to get out of the stock market? 

The Nortel execs came up with a scheme to cook the books to make Nortel's financial situation seem better than it
actually was.. as the big orders they were counting, (some orders are placed 2 years or more in advance because
of production timelines), were either delayed, postponed indefinitely, or even cancelled..they got deeper and deeper into red ink, and in order to raise capital for their operations, they had to keep the stock price momemtum going. 

The stock was already starting to go down in value after 2000 because they were initially declaring financial loss for companies that they bought at HUGE capital costs, that didn't have any promise of fast returns on investment.
When they stopped paying dividends on their stock in 2001..their days of using their stock to raise capital had
the writing already on the wall for investors, and after restating their financial position 3 times in 2002/2003..
they became a lame duck for any savy investors and the stock price plunged as savvy investors started to unload
any Nortel stock in their portfolios..it just wasn't profitable for them. The ones that held on to it..expecting it
to rebound lost their shirts as it finally plunged down to penny stock and go delisted on the TSE.
John Roth (retired at that point) was investigated for insider trading on his stock options in 2001 by the SEC.
Lawsuits were aplenty by numerous large stockholders in the US and Canada....it just got really ugly by 2003. 

Instead of negotiating with John Chambers of Cisco on the much needed routers, John Roth (former CEO at the time)
decided that *he would go it alone *in direct competition with a very successfull and well established router company
that had a large share of the market..and Nortel's customers (Telcos) were already using in their infrastructure.

Nortel bought Bay Networks ( a second rate router company) for several billion US dollars and changed their name
to Nortel Networks at that time. Unfortunately that was a BAD INVESTMENT for Nortel (it's own iceberg that they hit),
as it stripped the company of badly needed operating capital that should have been carefully keep in reserve for
hard times..it was a gamble and they played their hand... and started it on it's downward death spiral. 
(I know this from being on the inside and seeing what happened in the couple of years before I retired.)..I shook my head at the stupid
decisions being made by upper management..but was powerless to say anything as employees were
being dumped on the unemployment line by the THOUSANDS as they started to downsize in 2001.

Bay Networks..WAS the albatross around Nortel's neck. They never made any money off it and the Bay Networks
execs and stock holder laughed all the way to the bank at the time as they sold off their stock eagerly to
get rid of it! The other silly dotcom companies Nortel bought didn't amount to a hill of beans,
and in the end...they were sold off at fire sale prices and *precious sustaining
capital that might have seen the company get through hard recession times was lost.*

Just like the Costa Concordia or Titanic, you just can't turn a large ship or company around that quickly and from recent events, and past Nortel history we all know what happens when the "captains" make bad decisions. 

Fraud is fraud..there are no clear winner here..and everyone including the execs will lose in the end.
D&T..if they had any of reputation before that happened, they will be scrambling to minimize the severe damage done to their reputation as the trial continues for 6 months, and their accountants responsible for signing off on the "cooked" financial statement will be brought to account by the court investigation... and the media (newspapers) which will be waiting to snatch tidbits of information on what transpired. 

Shame on the Nortel execs and shame on D&T for playing along with their little fraudulent scheme!


----------

