North American securities regulators sued former top executives of Nortel Networks Corp. for allegedly manipulating earnings to meet financial targets.
The executives, including former Chief Executive Frank Dunn, engaged in accounting fraud from 2000 to 2004, the U.S. Securities and Exchange Commission and the Ontario Securities Commission alleged in complaints filed Monday. The complaints also target former finance chief Douglas C. Beatty and former Controller Michael J. Gollogly.
Toronto-based Nortel restated earnings going back to 1999 after probes by regulators in 2004 indicated executives incorrectly booked revenue, inflating sales figures by $3.4 billion. Nortel fired Dunn, Beatty and Gollogly after the investigations.
"The SEC's allegations suggest bold, knowing conduct," former SEC enforcement lawyer Jacob Frenkel said in an interview. "It will be interesting to see whether there are any more cases, civil or criminal." Frenkel, who is now in private practice in Rockville, Md., isn't involved in the proceedings.
The SEC, which filed its suit in U.S. District Court in New York, asked the court to force the defendants to forfeit gains from their conduct and pay unspecified fines.
"The fraudulent conduct at issue here was egregious and long-running," Linda Thomsen, the SEC's enforcement chief, said in a statement. "Each of the defendants betrayed Nortel's investors and their misconduct gave rise to billions of dollars in shareholder losses."
Dunn said he "welcomes the announcement" that the OSC would hold a hearing into the circumstances of the restatements, according to a statement. Other executives could not be reached for comment.