Defence says former Nortel execs accused of fraud did nothing wrong
Former Nortel Networks chief executive Frank Dunn leaves court in Toronto on Monday, Jan. 16, 2012. (The Canadian Press/Frank Gunn)
Published Tuesday, October 2, 2012 3:08PM EDT
The defence team for three former high-ranking Nortel executives argued Tuesday that improper accounting practices at the fallen technology giant were errors and not intentional manipulations, as the Crown suggests.
Lead lawyer David Porter, who represents Nortel's ex-CEO Frank Dunn, says there were no "dishonest acts" by his client or the other two accused, ex-CFO Douglas Beatty and ex-controller Michael Gollogly.
"There was no dishonesty in the preparation of the financial statements by anyone, and in particular, by none of the accused," Porter told Ontario Superior Justice Frank Marrocco in closing submissions.
In fact, the Crown's case against the accused is littered with "badges of innocence" as opposed to guilt, said Porter.
There is no evidence that the former executives falsified or asked anyone to falsify Nortel's accounting, conceal information from auditors or have any knowledge that what they were doing was wrong, he told the court.
The three top players at the insolvent Ottawa-based telecom firm face two counts each of fraud for allegedly falsifying the company's financial statements in 2002 and 2003 to trigger millions of dollars in bonuses for themselves.
Porter told the long-running fraud trial, which began in January, that the accounting decisions at Nortel during the time in question were done in good faith and made with the information available at the time.
The men are accused of knowing that excess accruals -- or cash reserves set aside to cover future liabilities -- were being improperly released between quarterly reports to show a return to profitability when in fact the company was struggling financially.
Even though Nortel had been losing millions of dollars for several years, it was still generating huge revenues from global sales of advanced technology and continued to reward employees with stock options linked to performance.
The court has been shown volumes of documents that suggest questionable accounting practices that the Crown says point to a fraud.
An internal report from the company's own accountants in September 2002 listed $303 million in so-called accruals on the company's balance sheet that was not known to the board of directors or auditors.
Another entry in question dates to February 2003, when the company had $189 million in accounting reserves but decided to only release $80 million during the first quarter of that year.
The inaccurate entries helped boost the bottom-line to meet internal targets that resulted in $12.8-million in cash and stock bonus payments for the accused.
Porter said neither the executives nor heads of Nortel's accounting division saw these types of practices as deceitful to investors or the board of directors.
"In cases where an accrual or release was restated, it was not restated for reasons of dishonesty or any wrongdoing whatsoever," he said.
He argued that the accused were "transparent," with Dunn repeatedly telling the accountants that "integrity was the underpinning of everything we do."
Even the auditors at Deloitte & Touche were well aware of the company's accrual policies, according to the defence.
"In short, there is not a single instance of evidence to show fraud in this case," said Porter.
The Crown has argued that information about the company's financial targets contained in internal roadmaps and forecasts were purposefully kept from the auditors.
Lead Crown lawyer Robert Hubbard said last week that these targets left Nortel's accountants no choice but to bend accounting rules to meet the unrealistic expectations of the executives.
Dunn, Beatty and Gollogly were fired from the company in 2004 amid the allegations.
The company filed for bankruptcy protection in 2009 in the United States, Canada and Europe amid mounting losses, falling sales, big debts and a legacy of legal issues.
At its height, the company was one of the world leaders in telecom equipment and had more than 90,000 employees.
Thousands of Canadians lost their jobs when Nortel folded, though thousands of positions were also rescued when other tech giants bought up Nortel's assets.
The closing arguments were expected to wrap up Wednesday.
If convicted, the men could face jail time.