SEC Charges Four More Ex-Nortel Officers With Fraud

Wednesday, 12 Sep 2007 | 2:47 PM ET

The U.S. Securities and Exchange Commission said on Wednesday that it has charged four more former officers at Canada's Nortel Networks with engaging in accounting fraud.

The agency had previously charged the company's former chief executive, chief financial officer and controller with directing the earnings management fraud in 2003 that manipulated the Toronto-based company's reserves.

In the SEC's expanded case, it is seeking civil monetary penalties, and officer and director bars against Douglas Hamilton, Craig Johnson, James Kinney and Kenneth Taylor, who served as vice presidents of finance for Nortel's Optical, Wireline, Wireless and Enterprise business units, respectively.

Attorneys for Hamilton, Johnson and Kinney could not immediately be reached. An attorney for Taylor declined to comment.

"The defendants charged today participated with Nortel's former top executives to improperly maintain, establish and release reserves in order to manipulate earnings and fabricate Nortel's return to profitability in the first quarter of 2003," said Christopher Conte, an SEC associate enforcement director, in a statement.

"Nortel's earnings management fraud could not have happened without their efforts."

The SEC said the defendants all determined their business units held tens of millions of dollars in excess reserves from the second half of 2002 through January 2003 and did not immediately release the excess amounts as required under U.S. Generally Accepted Accounting Principles, or GAAP.

The defendants then helped turn Nortel's first quarter 2003 loss into a reported profit under GAAP and largely erased Nortel's second quarter loss by improperly releasing about $154 million in reserves in the first quarter of 2003, and about $191 million in reserves in the second quarter, the SEC said.


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