# Not guilty verdict - Nortel



## mind_business (Sep 24, 2011)

http://www.canoe.ca/Canoe/Money/News/2013/01/14/20494691.html

I'm one of many that lost a significant amount of money on Nortel. I'm not exactly happy with this verdict. What do you guys think?


----------



## carverman (Nov 8, 2010)

I have basically lost part of my DB pension after 25 years at Nortel. 

Fortunately because of my divorce back in 98, I withdrew all my Nortel investments in the employee savings plan, so that way I didn't lose anything because of the bankruptcy, but I lost my transitional retirement benefit ($650 a month)
after they went bankrupt in Jan 2009, and since then lost ALL my pension benefits. 

The severely underfunded DB pension has been in the process of being wound up for the last 3 years..possibly by the end of the year. I have lost 33% of that as well.

I'm sure that there was some cooking of the books there, but they were clever enough to fool the auditors and if there is no definite proof of fraud, they got away with it in the more lenient Canadian Judicial system. In the US, more than likely they could be convicted and have to serve some time,but that isn't going to happen here. 

I guess it all goes back to the old saying "when it seems to be too good to be true (their overinflated stock in 1999/2000)..it probably is". 
The company had already started to crack at the seams back then (over 30k employees laid off)..and it took the economic collapse in the US in 2008 to push them over the edge, since over 75% of their future orders were from US carriers..and those orders dried up.


----------



## Rusty O'Toole (Feb 1, 2012)

Is there any possibility of suing them for damages, possibly a class action suit?


----------



## mind_business (Sep 24, 2011)

Rusty O'Toole said:


> Is there any possibility of suing them for damages, possibly a class action suit?


I think you're too late. There were a couple of class action suits for investors that lost money between a certain time-frame.


----------



## Beaver101 (Nov 14, 2011)

> *Carverman: *I'm sure that there was some cooking of the books there, but they were clever enough to fool the auditors and if there is no definite proof of fraud, they got away with it in the* more lenient Canadian Judicial system.* In the US, more than likely they could be convicted and have to serve some time,but that isn't going to happen here.


Sad day for pensioners and investors alike. ... just to show how much faith we can give our judicial systems not, especially for white collar crimes. 



> I guess it all goes back to the old saying "when it seems to be too good to be true (their overinflated stock in 1999/2000)..it probably is".
> The company had already started to crack at the seams back then (over 30k employees laid off)..and it took the economic collapse in the US in 2008 to push them over the edge, since over 75%of their future orders were from US carriers..and those orders dried up.


 ... I think all investors can learn from this.



> *mind-business:* I think you're too late ... time-frame.


 ... even it is not too late, the class action suit will drag on for years achieving nothing for the average Joe plaintiff except wearing down his/her life.


----------



## carverman (Nov 8, 2010)

Like *mind_business* mentioned, there have been at least two or more class action suits against Nortel's assets, which were sold and have a residual value of 8 billion or so. The junk/sleasy bond holders want 100% of their money back PLUS interest! Good luck with that.

The pensioners have their own legal team, and so far NOTHING....I'm not holding my breath expecting anything out of the 8 billion at this point coming back to me to compensate for the $84K that I lost in pension benefits and the remaining
payments on my transistional retirement benefit. I should have take it in a lump sum when it was offered and paid
any excess tax after putting it in my private RRSP..but unfortunately even in 2002, I never expected they would go bankrupt.,
even with the losses they were starting to declare. 

They went bankrupt in January 2009, now it's 4 years later and basically nothing has been done. It's one of the biggest bankruptcies in modern history, because they operated in several countries, not just Canada, so all the pensioners and creditors from other countries have put in claims, never mind the investors. It make take years to unravel the mess in the bankruptcy and who gets what from the remaining assets, and the lawyers working for the bankrupt trustees and other creditors will get the 'lion's share" of the proceeds. 

What I'm more concerned about now, is the windup of the pension plan and MY future survival on a annuity paid out by an insurance company that is supposed to replace the DB pension plan.


----------



## Eclectic12 (Oct 20, 2010)

mind_business said:


> I think you're too late. There were a couple of class action suits for investors that lost money between a certain time-frame.


Yes ... I was invited to join one of them but didn't think having 90% of my shares bought at $3 and sold between $12 and $8 was going to help the lawsuit too much.

I did have a bit from the spin-off from BCE and bit I bought at the $60 range but most of it was the low end.


Cheers


----------



## carverman (Nov 8, 2010)

The Nortel bankruptcy is a classic example of mismanagement based on present conditions, influences from others, counting your chickens (future orders), and greed...yes human greed. Nortel was (IMO), one of the flagship companies in the 70s,80s and early 90s when they stuck to their core business..improving on telephony, and in those days, when the US and Canada was converting from dial phone to digital with features, they had a huge market.

However, as the US modernized their systems and other competitors moved in, there was more competition for Nortel. The cellphone boom was one of their last great markets in the 80s/90s. After that, while they had a lot of great ideas and products under development, BUT the cost of implementing these ideas into US and Canadian carrier networks became too expensive for the Telcos. The big market for them was the US of course, even if they had a foothold in Great Britain.

In the early years Bell Canada also gave them a lot of business as they were converting old telephony technology (which
was also developed by Nortel to modern digital telephony. The growth in the 80's and early 90's was phenomenal, and even pushed up their stock to split 2 for 1, which also convinced the stock market into believing the tech bubble would continue.

But it didn't last...the ever present drive by the CEOs to keep the company growing and expanding into new (unproven markets for Nortel), finally started to starve the "golden goose" when they bought tech companies that they didn't have any real use for, or even investigated first... if the profit margins of these companies warranted the cost of takeover. 

The new corporate philosophy was..instead of developing new products in house..why not just buy the technology developed by other companies? It would seem to be much faster and cheaper. But "faster to market and cheaper" can come back to bite
you when you least expect it!

Buying all these rather dubious companies depleted cash flow and increased the DB pension liability. The products from these newly purchased companies in 99 and later (during the big tech boom) failed to pan out the way they expected, and by 2001 they were being sold at fire sale prices, as Nortel desperately tried to divest itself of the financial drag and employees that they had hired in the boom years to minimize their losses. 

The financial bleeding started a few years before they declared bankruptcy in 2009. In fact by 2000, there were signs "on the wall" that the tech market had slowed down, the dot com bubble had burst and the market for their products was taking a downturn in sales.

The final blow that killed the "golden goose" was corporate greed, bad management, too much diversification, and the US economic collapse in 2008..something that Nortel hadn't counted on.

In yesterdays interview from a former employee..'There will never be another Nortel in Canada."

Just like the Avro Arrow..it became a victim of bad decisions.


----------



## OhGreatGuru (May 24, 2009)

This will be no comfort to the Nortel pensioners, but it seems the court essentially decided it is not a criminal offense to run a company into the ground through bad management and questionable risk-taking. Companies go bankrupt this way all the time - Nortel was just notable because of its size.


----------



## carverman (Nov 8, 2010)

OhGreatGuru said:


> This will be no comfort to the Nortel pensioners, but it seems the court essentially decided it is not a criminal offense to run a company into the ground through bad management and questionable risk-taking. Companies go bankrupt this way all the time - Nortel was just notable because of its size.


Well this was an interesting case because of all the money that was wasted. At it's peak the company had a market capitalization of $400 BILLION US.



> How much influence? As of July 26, 2000, when Nortel was trading at $124.50 a share on the TSX, it represented 36.5 per cent of the TSE 300 index; the other 299 companies accounted for the rest. It had a market capitalization (number of shares times stock price) of almost $400 billion.


read more about it here:
http://www.cbc.ca/news/background/nortel/stock.html

The company was well under water when the three accused executives were accused of fraudulently misstating the books and were forced to go back a few years right up to 2000 to restate the books. Cooking the books to make the health of the company look better than it did, was the final blow. Because at that point, the stock plummeted overnight as the early stock holders frantically sold their Nortel holdings plunging the stock into penny stock and then after it got delisted on the Toronto stock exchange..basically worth as much as toilet paper. Millions of Canadians lost their retirement savings/pensions 
investing in Nortel, considered at one time to be a 'blue chip" company. 



> Nortel’s apparent recovery was not from “improved revenue and cost-cutting, but the release of more and more accruals” into earnings, the Crown said in its closing. The three men kept critical information from external auditors at Deloitte & Touche LLC, Mr. Hubbard said, that would have prevented the reserves from being entered as income.


“


> If things were kept from auditors, that’s evidence of fraud,” the prosecutor said.


http://www.canada.com/business/Crow...Nortel+brass+accused+fraud/7309425/story.html


----------



## sags (May 15, 2010)

Nortel is just one more example of how toothless our laws are.

White collar crime pays well in Canada.

The OSC and other regulators have long lists of companies convicted of committing illegal acts, including outright fraud, and being fined.......................who don't even bother to pay the fines.

Those "barred" from selling securities............just ignore the ban and continue on.

Why not.................scam 10 million from duped investors...............get fined 1 million which you have no intention of ever paying..............change the name and the game...........and carry on as usual.

It appears that the "suckers" are those who play by the rules.


----------



## fraser (May 15, 2010)

Certainly agree about white collar crime in Canada.

The larger issue is the complete lack of responsiveness and scrutiny by each of our provincial securities regulatory bodies. The seem to either turn a blind eye or act in a fashion after the fraud has occurred and the money spent or moved offshore.

No surprise in the Nortel case. Either the Crown did not prove it's case or they are truly not guilty. I would be surprised if the Crown appeals.


----------



## carverman (Nov 8, 2010)

fraser said:


> Certainly agree about white collar crime in Canada.
> 
> The larger issue is the complete lack of responsiveness and scrutiny by each of our provincial securities regulatory bodies. The seem to either turn a blind eye or act in a fashion after the fraud has occurred and the money spent or moved offshore.
> 
> No surprise in the Nortel case. Either the Crown did not prove it's case or they are truly not guilty. I would be surprised if the Crown appeals.


The Crown's case against the 3 executives was basically based on the premise of " outright fraud"...ie: cooking the books (annual financial report) *to make the company's financial picture better than it actually was*, allowing themselves hefty bonuses based on "improving" the companies financial picture.

By 2002, their stocks were sliding down at an alarming rate, prompting Nortel to do a re-consolidation of the stock.

Ie: stockholders can trade in 10 of the old stock they held issued at lets say $120... for 1 of the new stock issues valued at $40
This was a last ditch attempt at keeping the "Titanic" afloat after hitting a severe financial iceberg and sinking faster than you can say "Jack Sparrow".

Stockholders had the option of trading in their old shares valued at $120 (ten of these were worth $1200 face value at time of issue before
the year 2000), for one new re constituted/reconsolidation share of around $40 at the time, as the shares were devaluing on a daily basis...and most stock traders saw the writing on the wall.."either keep the old overvalued shares at $120 and get practically NOTHING when you go to sell them...
or trade them in (like you would trade in an old car for a new one) for a new share..that could hold the promise of "maybe'
they would recover in value in the future.

This created a panic run on the existing shares..further devaluing them. This maneuver Backfired on the company as the public/traders no longer
trusted Nortel anymore. Furthermore, the method of accounting (and Nortel's accountants (Touche&Ross) must have been aware of this) when
the 2002? profit and loss statement was released, prompted the SEC and others to demand that Nortel RESTATE their profit and loss all the way
to the year 2000, when Frank Dunn was still CFO . Dunn assumed the reins (CEO) after John Roth "retired", and cashed in his millions of stock
options well before the stock started to slide. He KNEW that Nortel's financial situation was tenuous at that point and he got out with his
millions before the collapse started in 2001/2002. Roth was actually investigated for INSIDER TRADING by the SEC and other interested parties
in the US, but they couldn't find enough dirt on him to convict him.....just like the three in the news recently. 


Nortel's zealous overexpansion, the shrinking of the US carrier market, the collapse of the dot.com bubble drove Nortel shares (after resconstitution) to practically penny stock (shares worth less than $1 and at that point the shares were delisted from the TSE) and the final nails were driven into Nortel's coffin by 2007/2008.


----------

