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Defence points to ‘badges of innocence’ in Nortel trial (BLAIR GABLE/REUTERS)
Defence points to ‘badges of innocence’ in Nortel trial (BLAIR GABLE/REUTERS)

Defence points to ‘badges of innocence’ in Nortel trial Add to ...

There is no evidence a fraud occurred at Nortel Networks Corp. and numerous “badges of innocence” that prove three former top executives did nothing wrong in preparing the financial statements of the company, their lawyer told a Toronto court Tuesday.

“There is not a single instance of evidence to suggest the existence of a fraud in this case,” lawyer David Porter said during his closing arguments in the long-running fraud trial.

Mr. Porter, who is representing former Nortel chief executive officer Frank Dunn, began closing remarks Tuesday on behalf of all three executives accused of manipulating Nortel’s accounting reserves in 2002 and 2003 to meet profit targets and trigger special bonuses for themselves.

He told Mr. Justice Frank Marrocco of the Ontario Superior Court that no witnesses testified at the trial that they had been told to do anything wrong by the accused or that they had been asked to keep any information from Nortel’s auditors at Deloitte & Touche.

Instead, Mr. Porter listed evidence that he said proves the men are innocent, including the fact senior executives told the audit committee of Nortel’s board about decisions to release accounting reserves that affected profits, and included information about the releases in the company’s financial statements for the public. The executives also agreed with a recommendation from auditors to launch a comprehensive balance sheet review “to get the accounting right,” he noted, which ultimately led to a restatement of the company’s books.

“These are badges of innocence in a case completely devoid of badges of fraud,” Mr. Porter argued.

The closing arguments by the defence – which are scheduled to wrap up Wednesday – stand in stark contrast to closing remarks last week by Crown attorney Robert Hubbard, who alleged that Mr. Dunn, former chief financial officer Douglas Beatty and former controller Michael Gollogly all fraudulently manipulated Nortel’s financial results.

Mr. Hubbard said the executives told staff to create “road maps” outlining how accounting reserves could be adjusted to reach profit targets. The documents became “road maps to a fraud,” he said, as the scenarios became the numbers reported by Nortel in its financial statements. The documents were never shown to auditors or the board of directors.

Mr. Porter, however, said Tuesday that the road maps were simply forecasting tools, and said there was “nothing nefarious” about the fact the numbers were similar to reported financial numbers because forecasts get more accurate closer to the close of quarterly financial periods.

He said Deloitte & Touche knew Nortel had a practice of forecasting how much of its accounting reserves would be released in a period, so nothing in the road maps would have been surprising to the auditors.

“The evidence is clear that Deloitte & Touche was well aware of Nortel’s practice of attempting to forecast provision releases,” he said.

Judge Marrocco asked Mr. Porter to comment on how he should view evidence of “earnings management” in the fourth quarter of 2002 through adjustments to accounting reserves that allegedly reduced Nortel’s profit to line up with a forecasted loss for that period.

Mr. Porter told the judge that if staff believed the entries were made honestly and “were believed to be justified,” then there is no crime. He also said staff involved in making the changes all testified during the trial that they felt the adjustments were justified.

He added that the changes to boost accounting reserves, which were made late in the closing process for the fourth quarter of 2002, were not an attempt to manipulate earnings, but were done because Nortel staff had been told to be cautious about missing any possible liabilities that could emerge later. The board, he said, “didn’t want any surprises.”

Judge Marrocco also commented that he has to consider the accounting decisions from a criminal perspective and not as an accounting or securities regulator, offering a hint he may be unwilling to base a ruling in the case simply on evidence of breaches of technical accounting rules.

Mr. Porter completed a general defence overview of the case Tuesday, and lawyers for each of the three accused will make remarks Wednesday about specific evidence involving their clients.

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