Canada launches criminal probe of Nortel accounting
Tuesday, August 17th 2004, 1:36 pm
By: News On 6
TORONTO (AP) _ Canadian officials are opening a criminal investigation into accounting at Nortel Networks Corp. Shares in the telecom-equipment maker edged lower Tuesday.
Canada's largest high-tech company said late Monday it had received a letter from the Royal Canadian Mounted Police's Integrated Market Enforcement Team advising that the RCMP will begin a criminal investigation. The probe follows months of informal review by police.
``The RCMP are beginning a criminal investigation, but they did not provide additional detail,'' spokeswoman Tina Warren told The Associated Press on Tuesday. Nortel said it ``will continue to cooperate fully'' with authorities.
The company's U.S.-traded shares fell 5 cents to $3.37 in early trading on the New York Stock Exchange.
The U.S. Attorney's office in Dallas has also subpoenaed financial documents from the company as part of a criminal investigation in the United States and securities regulators in both countries are investigating the company.
The company has also been hit with numerous class-action lawsuits related to the accounting scandal.
Duncan Stewart, an analyst at Tera Capital Corp., said the RCMP investigation was not surprising once securities regulators began to probe the company.
``What we are seeing here is not the end, but the beginning of the end of the process,'' Stewart said.
Stewart also said he expected Nortel to have pay about $1 billion to shareholders who have launched the class-action suits.
Nortel, based in Brampton, Ontario, fired chief executive Frank Dunn and two other high-level executives in late April and put several others on paid leave after the company's internal investigations found irregularities with its accounting practices.
At the time, it said it would restate earnings going back to 2001.
Nortel, one of the world's leading suppliers of telecommunications equipment, said in July the restatement would wipe out all its earnings from continuing operations in 2003. The restatement will also erase all earnings for the first half of that year, and Nortel will instead show a loss for that period.
The company is required by securities regulators to issue biweekly updates of its financial review until it files up-to-date financial statements.
An update last month triggered an initial surge in its stock, with some investors encouraged that the company had $3.6 billion in cash on June 30 and hadn't made any further adjustments to the restatements it expects to make.
However, Nortel said it had become clear that it would need to adopt an ``improved cost structure,'' hinting at the difficulty it faces to generate profits in future quarters.
On Thursday, the company is to release delayed financial reports for the first and second quarters of 2004.
It is also working on a restatement of financial results for each quarter in 2003 and for earlier periods, including 2002 and 2001, and the preparation of financial statements for full-year 2003.
Nortel has said the restatements will not affect its cash position as of Dec. 31, 2003, or change reported revenues significantly. The company said revenue adjustments it had found are less than 2 percent of previously announced annual revenues. But it did find instances where revenue was moved from one quarter to another.
Analysts have speculated that the firings and the restatement stem from accounting tricks Nortel played to make 2002 earnings look artificially worse than they were and 2003 earnings look better so executives could collect bonuses linked to the company's return to profitability.
Nortel said in July it would sue executives for the return of the bonuses, which analysts estimated totaled $20 million, if it found they had been improperly awarded.