TORONTO - Nortel Networks Corp. said Monday it has settled all issues with the U.S. Securities and Exchange Commission over the Canadian telecommunications equipment maker's accounting shambles.
Nortel will pay a civil penalty of US$35 million "to bring closure to the matter,'' the company announced shortly after the SEC filed complaint and settlement documents in New York.
Reports last summer had suggested Nortel could face SEC penalties of $100 million or more.
"The settlement recognizes the extensive and proactive efforts made by Nortel's board and senior management to identify and address the accounting and internal control issues and conduct that led to the investigation,'' stated CEO Mike Zafirovski.
"Nortel is recreating a great technology company which upholds the highest ethical standards and sound business practices.''
The company described the SEC deal as "the latest in a series of checkpoints in Nortel's turnaround.''
These have included a settlement in May with the Ontario Securities Commission, under which Nortel paid $1 million in investigative costs but was assessed no administrative penalty or fine.
The company has also agreed to pay more than $2 billion to settle class-action lawsuits on behalf of investors who bought Nortel stock while the company's financial statements were in error.
The SEC has been probing Nortel's accounting since 2004. The company has acknowledged its reported revenue was inflated by a total of US$3.4 billion during the turn-of-the-millennium technology boom.
In March, the SEC filed civil fraud charges against four former Nortel executives, including ex-CEO Frank Dunn and former chief financial officer Douglas Beatty, and the commission added charges against four other former managers last month.
Those cases remain outstanding, and the OSC also plans a hearing into allegations of misconduct and negligence against Dunn and others.
Nortel said Monday that its settlement with the SEC recognized that the board audit committee "on its own initiative, conducted extensive internal independent investigations and self-reported to the SEC and other regulators, and that the audit committee and senior management fully co-operated during the investigation and took prompt and meaningful action to correct the issues and restore the company to sound governance and financial practices.''
The SEC said Nortel engaged in "long-running, intentional and pervasive'' fraudulent schemes to meet "unrealistic revenue and earnings guidance'' in 2000, 2002 and 2003, in an effort to show it was surviving the telecom-gear downturn better than its competitors.
The commission said the company's actions resulted in tens of millions of dollars in unwarranted bonuses for "a select group of senior managers.''
Nortel settled the complaint without admitting or denying the allegations.
In addition to the US$35-million penalty, Nortel promised to give the American regulator quarterly reports on how it is dealing with remaining weaknesses in its internal controls.
"This is an important fraud case involving conduct from 2000 through 2003,'' stated SEC enforcement director Linda Thomsen.
"Since that time, under new leadership, Nortel has undertaken significant efforts to address the wrongdoing, remedy the harm and implement a remediation plan to prevent recurrence of the misconduct.''
Nortel shares traded down 22 cents to C$16.24 on the TSX after Monday's news. The stock, after a one-for-10 consolidation last Dec. 1, has a 52-week high and low of $37.35 and $15.33.
