American and Ontario securities regulators have dropped their outstanding cases against former executives of Nortel Networks Corp. almost two years after three of the men were acquitted of fraud charges in Ontario court.
The Ontario Securities Commission said Friday that it will withdraw its allegations against former Nortel chief executive Frank Dunn, former chief financial officer Douglas Beatty and former controller Michael Gollogly.
The U.S. Securities and Exchange Commission also announced it has dismissed all of its claims against the three men and two other former executives who were named in the U.S. action.
Both regulators launched their cases in 2007 but had put them on hold pending the outcome of an Ontario criminal trial against the company's three top executives. The men were found not guilty in January, 2013, but the regulatory cases remained dormant until Friday's notices that they have been abandoned.
The OSC announced its case in 2007, alleging the men acted contrary to the public interest over improper revenue recognition at Nortel and improper use of accounting provisions between 2000 and 2003. The regulator said it was seeking financial penalties and bans prohibiting all three from serving as directors or officers of public companies.
The executives were accused of misusing accounting reserves to push the company into profitability in 2002 and 2003 to trigger bonuses and share payments for themselves. Those accounting moves were later reversed in two major restatements of Nortel's financial statements that weakened the company at a time when its business was shrinking rapidly.
The OSC noted its decision to drop the case followed the verdict in the criminal trial, which hinged on "earnings disclosures which were the subject of the commission staff proceeding."
Mr. Justice Frank Marrocco of the Ontario Superior Court ruled in 2013 that the accounting manipulations did not cross the line into criminal behaviour and were not material for a company the size of Nortel. He said the decisions were reviewed and approved by auditors and adequately disclosed to investors.
Because the men were acquitted in criminal court, the OSC would not have been able to take the simple route of relying on a conviction in another jurisdiction to seek a reciprocal order before the regulatory tribunal. As a result, the regulator would have had to hold a lengthy hearing to reconsider all the evidence and hear testimony from the original witnesses if it wanted to continue to pursue the case.