TORONTO – Prosecutors in the high-profile Nortel fraud trial wound down closing arguments Friday, telling a Toronto courtroom that the former top brass at the defunct telecom giant knowingly breached accounting rules by orchestrating a scheme to “monkey” with numbers and trigger bonuses.
Crown attorney Robert Hubbard alleged that the company’s balance sheets were not simply inaccurate, but manipulated to trigger big bonuses for the executives and deceive the public about its flagging financial performance.
“You cannot just monkey with the accounting,” he said. “That’s what’s forbidden.”
Nortel’s ex-CEO Frank Dunn, ex-CFO Douglas Beatty and ex-controller Michael Gollogly are currently on trial each for two counts of fraud for allegedly falsifying the former technology giant’s financial statements in 2001 and 2003.
All three have pleaded not guilty.
Hubbard told the court that the accused are all experienced businessmen, with financial expertise, and should’ve known that it goes against regulatory rules to tamper with a company’s financial records to “help the bottom line.”
The Crown charges that the accused knew that accruals — or reserves of cash set aside for future liabilities — were being moved around to show a return to profitability when in fact the company was struggling financially.
Their alleged motivation was the desire to reach internal financial targets that would trigger a total $12.8 million in cash and stock bonus payments when the company’s quarterly earnings stopped bleeding red.
Hubbard said decisions about the financial statements were being made “independent of any economic activity.”
The Crown has also charged that the executives dismissed concerns raised by its external auditors, Deloitte & Touche, about the accuracy of Nortel’s financial statements, and that the company’s financial targets were purposely kept hidden from the accounting firm.
Nortel filed for bankruptcy in 2009. At one point, the Ottawa-based firm had 90,000 employees worldwide and was one of the foremost leaders in the telecom equipment industry.
The accused were fired from the company in 2004 over the fraud allegations.
The defence will follow with their closing submissions early next week.
That team argues that the bulk of the Crown’s evidence — emails, boardroom meeting minutes and quarterly financial projections and results — show only that errors were made and do not prove intent or that a conspiracy had been orchestrated.
At the time, the company was undergoing a massive restructuring that made keeping track of changes at its various divisions more difficult, the defence has argued.
It adds there is no evidence the accused ever asked anyone to create false financial statements or orchestrated a so-called large-scale conspiracy involving employees across the company. No fraud could have taken place because the company’s quarterly balance sheets, including the release of accruals, had been approved by outside auditors, they claim.
Since the bankruptcy, the company has sold off about US$7.7-billion in assets, in one of the largest asset sales in Canadian history.
Closing arguments by the Crown continue Friday, with the defence scheduled to present submissions next week.