So here's the deal: three former Nortel executives are on trial for fraud for allegedly engineering results that would give the company profits, triggering bonuses for them
But here are the problems the charges put forward by an RCMP White Collar Crimes unit that that has managed to get only one major conviction (the obviously guilty Garth Drabinsky) in the unit's history, and the theories of a prosecution that makes Inspector Clouseau look like Sherlock Holmes.
The three executives were way down the list of people who would get bonuses for the profitable periods. The three of them combined received less than ten percent of some individual former Nortel executives and Board members over the same period.
The Nortel Board and auditing firm Deloitte, which was paid about $10 million a year for auditing Nortel's books, all approved of the transactions that the executives on trial are accused of having made fraudulently. By definition, you can't do something transparently and with auditors' approval and commit fraud.
If indeed these transactions were fraudulent, then one of the unanswered mysteries of the Nortel Show Trial is the question of why the Board and Auditors who approved the transactions aren't also on facing the same fraud charges.
The answer seems obvious. The spectacular collapse of Nortel last decade had a devastating affect of the Toronto Stock Exchange and thousands of investors, many who lost fortunes while large investors like some of the Public Service Unions were able to force Nortel to pay them money at the expense of private individual investors.
The mob was screaming for blood, and so scapegoats were needed. The Board are part of the Bay Street old boy network, too well conected to go after. The sacrifice to the mob therefore came in the persons of Former CEO Frank Dunn, CFO Douglas Beatty and Controller Michael Gollogly.
In today's Ottawa Citizen, James Bagnall explains more of the illogical arguments and inconsistencies put forward by the prosecution:
The Crown has alleged this activity was directed by Nortel’s top three financial executives — Frank Dunn, Douglas Beatty and Michael Gollogly — in order to smooth out Nortel’s progression to steady, maintainable profits. Crown prosecutor Robert Hubbard added that Nortel management in January was expecting a loss in the first quarter of 2003.
He also maintains that management engineered earnings in order to trigger executive and other bonuses.
Nevertheless, to transform a fourth-quarter profit into a loss seems not only counter-intuitive, but contrary to the incentives in place for management. Indeed, the financial motivation for Nortel’s executives would have been to direct Harrison NOT to solicit new entries that created the quarterly loss.
UPDATE (Feb 1): Today The Ottawa Citizen's report discusses how the Crown's first witness actually helped make the defence's case. It also elaborates on how the Crown doesn't seem to understand the issues that it is prosecuting.