Risk & Compliance

Report: Mounties to Charge Ex-Nortel Finance Execs

The Royal Canadian Mounted Police reportedly are theorizing that a former finance chief and an ex-controller took part in an accounting fraud to ge...
Stephen TaubFebruary 25, 2008

The Royal Canadian Mounted Police are about to charge two former top finance executives at Nortel Networks for their alleged involvement in a fraudulent accounting scheme, according to Canada’s Financial Post.

Douglas Beatty, a former CFO, and Michael Gollogly, an ex-controller, are expected to be charged with fraud “imminently,” according to the report.

The charges stem from an RCMP probe launched in 2004. The Mounties’ investigation concerned the telecom giant’s financial results in the fourth quarter of 2002 and the first two quarters of 2003, according to the paper.

Beatty and Gollogly reported to then chief executive officer Frank Dunn, who was fired “for cause” in 2004 after the Toronto-based company announced it would restate its financials, the Post reported. Lawyers for Beatty and Gollogly couldn’t be located at presstime.

RCMP officials met separately with Beatty and Gollogly and their lawyers to provide a preview of the criminal fraud case against them, according to the paper, which reported that the Mounties theorize that the accounting fraud was committed to generate fake profits and boost executive bonuses. The Mounties press officer had not returned a call at presstime/

The paper also noted that the office of the U.S. Attorney for the Northern District of Texas is continuing its four-year criminal investigation into the accounting practices at the company. Nortel employs about 12,900 people in the United States and its U.S. headquarters are in Richardson, Texas.

According to the report, U.S. law enforcement officials are looking at the company’s incentive compensation programs, how they were devised and how the company booked revenue from sales transactions.

In 2003, Nortel paid about $75million in bonuses to managers and employees in cash and stock after returning to profitability after years of losses, according to the report.

In March 2007, the Securities and Exchange Commission filed civil fraud charges against Beatty, Gollogly. None of the charges against the executives has been proven in a court of law, according to press reports.