Related Articles
The RCMP have launched a criminal investigation of Nortel Networks Corp., greatly increasing the legal pressure on Canada's embattled technology star as it tries to sort through an accounting disaster stemming back 3 1/2 years.
"We have determined there are grounds to go forward with a criminal investigation," said Corporal Michele Paradis, a spokeswoman for the Royal Canadian Mounted Police. "What those grounds are, I can't get in to."
Nortel, based in the Toronto suburb of Brampton, announced yesterday that it had received a letter from the RCMP informing it of the criminal investigation. The company said it would fully co-operate.
To many industry observers, the telecommunications network equipment company was poised to move beyond the accounting problems that have plagued it through most of this year and driven its stock sharply lower. But news of the latest criminal investigation reinforces the fact Nortel won't easily leave the scandal behind.
The RCMP is just one of a number of authorities probing Nortel and what led to its accounting miscues. In April, Nortel shocked investors when it said those errors would cut its 2003 profit of $732-million (U.S.) — its first year in the black since 1997 — in half. The company fired three top officials, including president and chief executive Frank Dunn.
The United States Attorney's Office in Dallas, home to Nortel's U.S. headquarters, has already issued subpoenas for documents — financial statements, accounting records and personnel information dating back to Jan. 1, 2000. The U.S. Securities and Exchange Commission and the Ontario Securities Commission are also investigating.
The Mounties will likely significantly increase the intensity of their investigation over the next month, a probe that began informally several months ago. Numerous interviews of current and former workers are expected, a long list that will almost certainly include Mr. Dunn and former chief financial officer Douglas Beatty.
A Nortel spokeswoman said the RCMP didn't precisely define the scope of the investigation in the letter. "They didn't provide details whether it was company-specific or if it was executive-specific," said Tina Warren of Nortel.
Mr. Dunn did not return a phone call to his home. Mr. Beatty could not be reached.
A central question centres on the company's generous bonus schemes. The originally reported profit in 2003 produced massive payouts of at least $137-million. In fact, $41-million was dished out in February, though not to Mr. Dunn or to Mr. Beatty. Nortel at the time was right in the middle of the accounting review that led to the halving of the vastly overstated 2003 profit.
Nortel is restating financial results for 2001, 2002 and 2003. Final figures for 2003 are expected to be filed by the end of September and prior periods will be submitted as soon as practical, the company has said. On Thursday, Nortel will publish preliminary figures for the January-June period of this year. , the first look at those numbers, long delayed because of the accounting review.
