* Former CEO and two others were accused of misrepresenting
* One-time tech heavyweight crashed after dot-com bubble
* Judge says prosecutors failed to meet burden of proof
(Adds comments from academic, reference to bankruptcy hearing)
By Susan Taylor and Allison Martell
TORONTO, Jan 14 An Ontario Court on Monday
dismissed fraud charges against three former top executives at
bankrupt Nortel Networks Corp after a year-long trial involving
one of the most spectacular casualties of the 1990's dot-com
Former Chief Executive Frank Dunn, former Chief Financial
Officer Douglas Beatty and former Controller Michael Gollogly
were found not guilty of fraudulently misrepresenting Nortel
results in a tumultuous time for the one-time tech superstar
between 2000 and 2004.
Prosecutors had charged that the accused manufactured a loss
in one quarter at the end of 2002 and a profit in a subsequent
three-month period, defrauding investors and triggering more
than $12 million in cash and stock bonuses.
But Ontario Superior Court Justice Frank Marrocco said he
was not satisfied that the three accused had improperly
accounted for accrued liability balances to misrepresent the
2002 results, nor that they had fudged income statements in the
first quarter of 2003 in order to earn a bonus.
"The accused are presumed innocent. The burden is on the
prosecution. It was entirely appropriate that we go through this
process to find out what happened. The burden, in my view, is
not met. The charges are dismissed," he told a crowded
The verdict - which comes more than four years after the
executives were first charged - is bound to focus attention on
complaints that Canada is soft on corporate crime.
"White collar crime pays in Canada," said Ramy Elitzur, a
financial analysis professor at the University of Toronto's
Rotman School of Management. "I must say, I'm very discouraged
by this court decision."
He said Canada needs a national securities regulator to
pursue market and accounting crimes more effectively, along with
a more aggressive attitude.
'NO FRAUD AT NORTEL'
Lawyers for the accused described the result as a
vindication for their argument that the three executives had
done nothing wrong.
"We're ecstatic with the result," Beatty's lawyer, Gregory
Lafontaine, said after the ruling, his client smiling behind him
outside the downtown Toronto court building. "It's a great
judgment, and a complete vindication of Mr. Beatty. There was no
fraud at Nortel. No fraud at Nortel at all."
The decision has no bearing on Nortel's complex bankruptcy
proceeding, where suppliers, bondholders, governments and former
employees hold $20 billion in claims. Nortel, which filed for
bankruptcy in 2009, has just $9 billion in cash.
Mediation in that matter begins this week in Toronto.
Once the equipment manufacturing arm of Canada's biggest
phone company, Nortel became a market darling in the late 1990s
as the Internet revolution picked up steam and investors bet the
company would make billions selling fiber optics networks.
In 2000, speculators drove the company's shares up to the
point where its market capitalization topped out around C$400
billion, a full third of the entire Toronto Stock Exchange.
But the shares plunged as tech stocks fell out of favor and
Nortel's sales missed analysts' stratospheric expectations by
miles. The stock dropped more than 99 percent by 2002,
decimating investment funds.
Nortel returned to profit in 2003 after several years of
losses, but the company then restated its results several times,
shaking investor faith and triggering numerous investigations.
The scandal led to the firing of the three defendants in
Dunn had been Nortel's chief financial officer before his
promotion to CEO in 2001, succeeding the affable John Roth at a
time when no one else wanted the job.
With the company taking heavy losses, Dunn eliminated tens
of thousands of jobs, sold plants, shut business lines and
WHITE COLLAR CRIME
Critics have long argued that Canada is soft on white-collar
crime. Some high-profile cases have dragged on for years, in
contrast with cases in the United States that brought long
prison sentences for corporate criminals.
In 1997, shares of Bre-X collapsed after it emerged that
samples from its Busang gold deposit in Indonesia had been
salted to create the impression of a massive gold strike.
Despite a prosecution that dragged on until 2007, no one was
Elitzur said the Nortel trial would have produced a
different outcome had it been heard in the United States.
"They understand that market failures could be deadly to the
operation of a capital market and that's why they pursue more
aggressively securities violations," he said.
(Additional reporting Andrea Hopkins, writing by Cameron
French; Editing by Nick Zieminski, Janet Guttsman and Dan