June 19, 2008 -- (WEB HOST INDUSTRY REVIEW) -- The former leaders of Canadian telecommunications provider Nortel Networks (nortel.com) have been charged with fraud following a 2002 to 2003 accounting scam that took up tens of billions of dollars of stock market value, according to reports by the Canadian Press.
The Royal Canadian Mounted Police said Thursday that they have charged former CEO Frank Dunn and two former top finance executives with fraud.
Dunn has been charged with fraud affecting the public securities market and falsification of accounts and documents and involvement in issuing a false prospectus. Meanwhile, former CFO Douglas Beatty and former corporate controller Michael Gollogly face similar charges.
Nortel itself was not charged and issued a statement affirming this point, as well as the fact that it was not the target of the investigation.
"The company has fully co-operated with the RCMP and will continue to do so," Nortel said in the statement. "Nortel is rebuilding a great Canadian company while upholding the highest standards of integrity and ethics."
In one of the most controversial Canadian stock market fiascos, Nortel's stock share plummeted from hundreds of dollars to mere pennies after an internal audit revealed that approximately $3 billion of the company's revenues was fraudulently misstated in accounting records.
The scandal, which eventually led to the departure of 10 Nortel executives in 2004, was one of many major accounting frauds in North America that triggered the collapse of corporate heavyweights such as Enron, WorldComm, Adelphia Communications and the Hollinger newspaper group.
Many of the top executives of those corporations, including Adelphia's John Rigas, WorldComm's Bernie Ebbers and Hollinger group's Conrad Black, were imprisoned after federal investigations found them guilty of financial fraud.
The RCMP allege criminal activity within Nortel from the beginning of 2002 to mid-2003, at the time when Dunn, Beatty and Gollogly are accused of falsely misreporting financial results.
In April, former Nortel executives Craig Johnson, James Kinney and Kenneth Taylor reached a settlement with the US Securities Exchange Commission for their involvement in the allegations, agreeing to pay $75,000 each, plus related interest, without admitting or denying the allegations.
The SEC alleged that the three men carried out orders from Dunn, Beatty and Gollogly to falsley misreported Nortel's earnings by creating approximately $37 million in unnecessary reserves during Q4 2002 that "they knew, or were reckless in not knowing, were no longer needed."
The SEC said that it is still continuing its litigation process against five other former Nortel executives involved in the alleged accounting fraud.
Nortel shares were down 29 cents at $9.71 as of Thursday morning.
The RCMP said that Dunn, Beatty and Gollogly, who were all dismissed from Nortel in 2004, are set to appear in a Newmarket, Ontario court.
