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Transaction/Case Details

Ontario Superior Court acquits former executives of Nortel of fraud

DATE CLOSED

January 14, 2013

BUSINESS SECTOR

Individuals

LEAD OFFICE

Toronto


OVERVIEW

In June 2008, three former executives of Nortel Frank Dunn (the former CEO), Douglas Beatty (the former CFO) and Michael Gollogly (the former controller) were charged with two counts of fraud in relation to the preparation of the financial statements of Nortel between 2000 and 2004.  Each was alleged to have committed fraud by “deliberately misrepresenting the financial results” of Nortel between 2000 and 2004, thereby defrauding the public in count 1, and Nortel, in count 2 of the indictment.  McCarthy Tétrault conducted Mr. Dunn’s defence at trial.

On January 14, 2013, Justice Marrocco of the Ontario Superior Court of Justice acquitted the three former executives of Nortel.  The acquittals involved a fundamental rejection by Justice Marrocco of the Crown theory that, in Q4 2002 and Q1 and Q2, 2003, the three former executives of Nortel had fraudulently manipulated the booking, and release, of accrued liabilities in an effort to create false financial statements, triggering bonuses to which they were not entitled.

The decision in Regina v. Dunn, Beatty and Gollogly is the first time a Canadian criminal court has considered an allegation of accounting fraud against corporate executives, based on a prosecution claim that the existence of fraud can be inferred from the restatements themselves.  This claim was firmly rejected by Justice Marrocco, who found that the differences between the first restatement, the second restatement, and the original accounting was not attributable to fraud but rather to different thresholds between the first and second restatement and, more fundamentally, to Nortel’s auditors changing their minds concerning the proper accounting for the transactions at issue.

After the six month trial, and reviewing thousands of pages of documentary exhibits, Justice Marrocco acquitted the accused, concluding that the original financial statements of Nortel were not materially misrepresented.  

In the end, Justice Marrocco found that Nortel’s original financial statements for the years 2000, 2001, 2002, Q1 2003 and Q2 2003 properly reflected Nortel’s financial reality.  This decision was a resounding victory for the accused.

McCarthy Tétrault LLP successfully represented Mr. Frank Dunn, one of the defendants in the dismissed fraud charge, with a team led by David Porter.

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