The Crown has “not even come close” to proving three former Nortel Networks Corp. executives fraudulently manipulated the company’s financial statements, a lawyer for Douglas Beatty said Wednesday.
Greg Lafontaine, who is representing Nortel’s former chief financial officer, told a Toronto courtroom there is no evidence that his client told anyone to do anything wrong, arguing it would have taken an “almost fantastic conspiracy theory” and an “untold number of schemers” to have done the manipulations suggested by the Crown.
“The Crown has in this case failed to prove guilt beyond a reasonable doubt and in my respectful submission has not even come close,” Mr. Lafontaine told Mr. Justice Frank Marrocco of the Ontario Superior Court.
Lawyers completed their closing arguments Wednesday in the long-running trial, which began in January and heard witness testimony until June. Mr. Beatty, former chief executive officer Frank Dunn and former controller Michael Gollogly are each charged with two counts of fraud for allegedly manipulating Nortel’s books in 2002 and 2003 to meet profit targets and trigger bonuses for themselves.
Judge Marrocco fixed a date of Jan. 14 to return to deliver a verdict in the case, which coincidentally will fall four years to the day that Nortel filed for bankruptcy protection in 2009. He did not choose the anniversary intentionally, however, but instead settled on Jan. 14 after lawyers in the courtroom struggled to find a date they would all be available to return.
Defence lawyers presented an overview of their combined arguments on Tuesday, and focused Wednesday on individual evidence against each of the accused, repeating arguments that the Crown’s case lacks any concrete evidence that any of the accused directed anyone at Nortel to make a false accounting entry.
Mr. Lafontaine said it is almost impossible for anyone to manipulate earnings in an organization as complex as Nortel because there were so many people involved in every decision. He said Mr. Beatty did not have the “freedom, the rope, the leeway” to make unilateral accounting changes.
“Nobody here is acting on a frolic of their own,” he said.
Lawyer Sharon Lavine, who is representing Mr. Gollogly, said her client was the one who launched the first review of Nortel’s balance sheet issues in the fall of 2002 that later led to a more comprehensive study and ultimately a restatement of the company’s books.
She said testimony at the trial showed Mr. Gollogly was consistently trying to clean up the books and get the accounting right.
Ms. Lavine also argued a controversial draft letter Mr. Gollogly wrote to Nortel’s board in the summer of 2003, which he never sent, was more evidence of his diligence. In the letter, he complained about accounting treatments at the company, but she said he never sent it because Mr. Beatty agreed to address Mr. Gollogly’s objections involving three accounting reserves.
“In light of the changed circumstances, Mr. Gollogly simply abandoned the drafts or the entire notion of writing letters to Mr. Beatty or the board,” she said.
Instead of being proof he was hiding accounting wrongdoing as the Crown has alleged, Ms. Lavine said the letter proves Mr. Gollogly was trying to get the books right.
“There has been a total absence of evidence to suggest Michael Gollogly engaged in any misconduct,” she said.
Lawyer David Porter, who is representing Mr. Dunn, said evidence showed his client was not involved in making decisions about individual accounting entries at the company. Mr. Dunn was also travelling overseas during the entire controversial period in early January, 2003, when the Crown alleges staff manipulated reserves for the 2002 financial statements, Mr. Porter said.
“There’s no evidence from any witness that Mr. Dunn ever asked anyone to do anything dishonest or make any false financial statements,” he said.
Judge Marrocco again Wednesday asked the defence whether “earnings management” actions should be considered to be a criminal act or simply a regulatory infraction, marking the third day at the trial that he has asked for lawyers to express their views on this central issue in the case.
Mr. Porter responded that there was no evidence of earnings management by executives at Nortel, but did not address the broader question about whether or where a threshold lies between an accounting infraction and a criminal fraud.