Saturday, January 14, 2012

The Nortel Show Trial

The largest fraud trial in Canadian history is set to being on Monday. Nortel's collapse in 2003 cost billions to shareholders.  It had a major affect on pension funds and thousands of individual investors. Nortel's misfortune was one of the most sudden and extreme falls of an enormous corporation since the Great Depression. Billions were paid out in legal settlements and naturally everyone concerned looked around to find someone to blame.

During the dot com bubble of the early 2000's, Nortel's Board had approved billions of dolars worth of acquisitions of what turned out to be near worthless investments, and it fell to CEO Frank Dunn and CFO Douglas Beatty to try to turn that around. They instituted massive spending cuts that resulted in billions of savings and as far as financial markets were concerned, they were able to effect a miraculous resurrection at Nortel.

The Crown is alleging an extremely complex fraud on the part of Dunn, Beatty and controller Michael Gollogly to manipulate losses and earnings from one quarter to the next in order to meet the conditions for performance bonuses for the senior executives.

However there's no proof that ever happened.

Everything the trio of Dunn, Beatty and controller Michael Gollogly did was approved by the auditing firm Deloitte and fell withing the parameters of normal business practices and reporting. Just days before trial, amid the four million documents the crown has submitted as being relevant without identifying a single one that specifically shows fraud by the defendants, charges of falsifying documents were dropped. The fraud charges remain, but there is much speculation that this is simply a case of the government trying to look like it is doing something in the face of the anger and outrage from the public about a series of events which few people understand.

In today's National Post,

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