Wednesday, January 14, 2009

Another one bites the dust: Nortel is going bankrupt.

Nortel bites the dust, and fraud is part of the drama behind the headlines. I've collected a few articles, quotes, and links that I'm looking at right now, and I'll update this post as I dig a little more.

Long-struggling Nortel files for bankruptcy:
(Rob Gillies, Associated Press)

"Nortel was founded as Northern Electric and Manufacturing in 1895, supplying equipment for Canada's telephone system. The company pioneered digital network switches in the 1970s and grew into a major telecommunications supplier after the U.S. breakup of AT&T in 1984 expanded competition in the industry."

"In 2004, the U.S. Securities and Exchange Commission launched a formal investigation into Nortel's financial statements. The agency accused Nortel of manipulating its books in 2000, 2001 and 2003 to make it appear the company was holding up better during the technology implosion."

Nortel Files for Bankruptcy After Losses Mount (Bob Van Voris and Joe Schneider, Bloomberg, 1/14/09)

How did Nortel get to this point?

SEC Charges Four Former Senior Executives of Nortel Networks Corporation in Wide-Ranging Financial Fraud Scheme (US Securities and Exchange Commission, 3/12/07)

Named in the Commission's complaint are Frank A. Dunn, Douglas C. Beatty, Michael J. Gollogly and MaryAnne E. Pahapill."

""The fraudulent conduct at issue here was egregious and long-running. Each of the defendants betrayed Nortel's investors and their misconduct gave rise to billions of dollars in shareholder losses," said Linda Thomsen, Director of the Commission's Division of Enforcement. "The action we take today sends a strong message that officers of U.S.-filing foreign corporations will be held to the same standards of accountability that are required of all participants in the U.S. financial markets."

Nortel Networks Pays $35 Million to Settle Financial Fraud Charges
(U.S. Securities and Exchange Commission, 10/15/07)

Of course, human greed had something to do with this:

SEC Complaint (pdf)
"This case involves two fraudulent accounting schemes, a revenue fraud scheme and an earnings management scheme, which enabled Nortel Networks Corporation (“Nortel” or “the Company”) to meet the unrealistic revenue and earnings guidance that its top executives had provided to Wall Street in 2000 and again in 2002 and 2003. The first scheme – led by three corporate executives – accelerated material amounts of revenues into 2000 and created the false appearance that Nortel was weathering an industry-wide economic downturn better than its competitors. The second scheme – led by two of the same corporate executives, a third (but different) corporate executive and four business unit executives – reduced or increased Nortel’s earnings as necessary to create the false appearance that Nortel had stabilized its operations and returned to profitability for the first time in over three years, and was designed to pay bonuses..." (My emphasis)

Accounting Scandals (Wikipedia)

Called to Account: Fourteen Financial Frauds that Shaped the American Accounting Profession

"Chapters describe the tricks fraudsters such as 'Crazy Eddie' Antar and 'Chainsaw Al' Dunlap used to fool their auditors. Readers will learn how MiniScribe employees disguised packages of bricks as inventory; how Equity Funding personnel programmed the company's computer to generate 64,000 phony life insurance policies; and how Enron inflated its profits by selling and then repurchasing money-losing assets.Complementing these chapters on high-profile crimes and criminals are chapters that trace the development of the public accounting profession and explain how each scandal shaped current accounting practices."

No comments: