(Adds CEO comments, details, share price)
By Lynne Olver
TORONTO, May 22 (Reuters) - The Ontario Securities Commission approved on Tuesday a settlement agreement with telecom equipment maker Nortel Networks Corp. NT.TO over misleading accounting practices and regulatory filings that were made several years ago.
The company will pay C$1 million ($917,000) toward the cost of investigation by the OSC, Canada’s major securities regulator, into its accounting. But Nortel will not have to pay any monetary penalty, in part because it cooperated with the commission’s investigation.
A penalty on top of Nortel’s remedial costs to date, which include the costs of outside investigations, restating financial results and settling class-action lawsuits, would not serve as an additional deterrent, said Wendell Wigle, chairman of the OSC’s three-member panel.
Nortel, which Wigle described as “a leading issuer” in Ontario’s capital markets, admitted that it filed misleading financial statements due to improper accounting for provisioning and revenue recognition.
Nortel agreed that its financial statements for the 2000 fiscal year, the first two quarters of 2002, and the final two quarters of 2003 were misleading, and that its accounting for provisioning and revenue recognition did not adhere to generally accepted accounting principles.
The agreement states that Nortel’s former senior executives emphasized meeting revenue and earnings targets, which “led to a culture within the finance organization of Nortel that condoned two types of inappropriate accounting practices.”
Since then, Nortel has had to restate various financial statements three times, and the company estimates the costs of its “remediation activities” at more than US$500 million.
Nortel Chief Executive Mike Zafirovski, who attended the OSC hearing on Tuesday along with other company executives, said the settlement brings it “a major step” closer to putting its accounting woes in the past.
He said he is confident that with “the inordinate amounts of attention and investments” Nortel has made to improve its corporate governance, financial controls and reporting, it will be among the world’s best-run companies.
“We’re not there yet,” Zafirovski told reporters outside the hearing room. “We have a few things to finish between now and year-end.”
The company has to report to the OSC quarterly on its progress in making improvements, and Zafirovski said those were 90 percent complete. Some training still needs to be completed, and one “material weakness” dealing with revenue recognition needs to be fixed, he added.
The company is also negotiating to settle outstanding issues with the U.S. Securities and Exchange Commission, he said.
The Ontario Securities Commission’s settlement with Nortel is separate from OSC proceedings against some former Nortel executives, including former CEO Frank Dunn. The Securities and Exchange Commission also filed civil fraud charges in March against Dunn and three other former executives.
On the Toronto Stock Exchange on Tuesday afternoon, Nortel shares were up almost 5 percent at C$27.82. Canadian markets were closed on Monday for a holiday. Nortel stock rose 3.9 percent in New York on Monday, and was up a further 1.5 percent on Tuesday afternoon in New York.