Douglas Hamilton, Craig Johnson, James Kinney and Kenneth Taylor were added to a March 2007 complaint against senior Nortel executives, including former CEO Frank Dunn, in an amendment.
The four men are former vice presidents of finance in Nortel’s Optical, Wireline, Wireless and Enterprise business units, respectively.
The SEC claims the defendants illegally mismanaged financial reserves in order that Nortel would meet the market’s estimates for profitability, one effect of which was that executives received bonuses.
The amended complaint says that the four men stashed tens of millions of dollars in reserves from their respective business units during the second half of 2002, rather than reporting them.
As Nortel was closing its 2002 books, the four set aside about $44m in order to lower Nortel’s earnings into the loss that was expected by internal estimates and the market, the SEC claims.
These reserves were subsequently released onto the earnings statement in the first and second quarters of 2003, to the tune of $154 m and $191m, boosting Nortel’s bottom line and allowing it to report a profit rather than a loss, the complaint says.
They were instructed to do so as part of a company-wide scheme to massage earnings by CEO Frank Dunn, CFO Douglas Beatty and controller Michael Gollogly, the original three defendants named in the March complaint, according to the SEC.
The new claims fit into the overall pattern of alleged wrongdoing that the SEC says saw Nortel used illegally creative accounting in order to create the false impression that it was weathering the telecoms downturn of a few years ago better than its competitors.
Dunn, Beatty and Gollogly were all terminated for cause in April 2004, having left Nortel in an accounting crisis that took some time to recover from.
The SEC’s actions seek the usual civil penalties, including monetary penalties, injunctions, and the return of ill-gotten gains.
