SEC Charges Four More Nortel Executives

| About: Nortel Networks (NT)
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It has taken awhile but the U.S. Securities and Exchange Commission has come down on some of the other Nortel (NT) executives who were allegedly involved in cooking the books to trigger a lucrative bonus structure.

In filing civil fraud charges, the SEC named Douglas Hamilton, Craig Johnson, James Kinney (VP, finance for and Kenneth Taylor, who are all ex-VP of finance. These charges come in the wake of similar charges against ex-CEO Frank Dunn, ex-CFO Doug Beatthy and ex-controller Michael Gollogly.

The SEC alleges from the middle of 2002 to January 2003, Hamilton, Johnson, Kinney and Taylor “did not immediately release excess reserves” from their business units as required under GAAP. Instead, they “maintained them for earnings management purposes”.

In the latest charges, the commission alleges that from the second half of 2002 through January 2003, Hamilton, Johnson, Kinney and Taylor “all determined that their business units held tens of millions of dollars in excess reserves.” This decision caused Nortel to post a lost in Q4 2002 rather than a profit.

The SEC’s filing is an amendment of an original complaint filed on March 12, 2007 in which the SEC alleged that “Dunn, Beatty and Gollogly learned that the company was carrying massive amounts of excess reserves and then directed the alleged reserve manipulations to meet earnings targets, fabricate profits and pay performance-related bonuses”. The SEC also alleged that Dunn, Beatty and ex-assistant controller MaryAnne Pahapill “altered Nortel’s revenue recognition policies from late 2000 through January 2001 to accelerate revenue to meet publicly announced revenue targets.”

According to AP, the SEC alleges that Dunn, Beatty and Gollogly directed the improper company-wide release of about $500 million of excess reserves in the first and second quarters of 2003 to inflate earnings and pay bonuses.

The SEC’s 74-page complaint with all the juicy allegations can be found here.