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U.S. Securities and Exchange Commission

SEC v. Nortel Networks Corporation, et al., Civil Action No. 07-CV-8851-LAP (S.D.N.Y.) and SEC v. Frank A. Dunn, et al., Civil Action No. 07-CV-2058-LAP (S.D.N.Y.)

Latest Action:  On October 29, 2009, the SEC moved to create a Fair Fund and appoint a Distribution Agent, which the Court approved by Order dated November 2, 2009.  The SEC Fair Fund consists of all of the funds paid to date by Nortel Networks Corporation and Nortel Networks Limited (collectively, the “Company”), and three of Nortel’s former executives, Craig A. Johnson, James B. Kinney and Kenneth R. W. Taylor.  The funds paid by the Company and the three settling individuals were deposited into the Court Registry Investment System (CRIS) which, with accrued interest, held approximately $35.5 million as of October 2011.  On October 5, 2011, the Court approved a Fair Fund Plan of Distribution to Investors. 

The SEC Fair Fund is separate and independent from the settlement funds previously established in the private securities class action litigations involving Nortel, which were brought in the United States District Court for the Southern District of New York, the Ontario Superior Court of Justice, the Superior Court of Quebec and the Supreme Court of British Columbia.  However, like these class actions, the SEC Fair Fund relates to purchases of Nortel common stock during the Recovery Periods of October 24, 2000 through the close of the markets on February 15, 2001 and/or April 24, 2003 through the close of the markets on April 27, 2004. 

If you previously submitted a proof of claim in one of the class actions and that claim was approved, you do not need to submit another Proof of Claim Form to participate in the SEC Fair Fund.  If you submitted a proof of claim in one of the class actions that was not approved, or if you wish to submit a claim for additional transactions in Nortel common stock during the relevant period, you must submit a Proof of Claim Form and all required documentation.

Investors can obtain further information about the distribution process by calling the Garden City Group, Inc., the Fair Fund Distribution Agent, at (888) 561-9182, or emailing questions to questions@nortelsecsettlement.com.  The Garden City Group has set up a website at www.nortelsecsettlement.com.

Background:  On October 15, 2007, the SEC commenced litigation against Nortel Networks Corporation alleging that Nortel engaged in two fraudulent accounting schemes, one involving revenue recognition fraud and the other involving earnings management fraud, which enabled Nortel to meet the unrealistic revenue and earnings guidance that it had provided to Wall Street in 2000 and again in 2002 and 2003.  Nortel and Nortel Networks Limited consented to the entry of a Final Judgment against them, which was entered by the United States District Court for the Southern District of New York on October 25, 2007.  As required by the Final Judgment, the Company paid to the Clerk of the Court disgorgement of $1 and a civil penalty of $35,000,000, which the Clerk deposited into an interest-bearing account with the CRIS.

The SEC had commenced a related litigation, earlier in 2007, against former Nortel executive officers Frank A. Dunn, Douglas C. Beatty, Michael J. Gollogly, MaryAnne E. Pahapill, Douglas A. Hamilton, Craig A. Johnson, James B. Kinney and Kenneth R. W. Taylor.  Johnson, Kinney and Taylor consented to Final Judgments entered by the Court on May 2, 2008, which required each of them to pay a civil penalty of $75,000 plus disgorgement including prejudgment interest in the amount of $88,031, $68,481and $68,481, respectively, to the Clerk of the Court.  The funds paid by Johnson, Kinney and Taylor – in the aggregate amount of $449,993 – were deposited by the Clerk of the Court into the CRIS.  In August 2009, the SEC’s litigation against the other executives was stayed pending the completion of criminal proceedings against Dunn, Beatty and Gollogly in Canada.  The criminal trial in Canada is expected to commence in January 2012.

For more information about the SEC’s action, you can read Litigation Release Nos. 20036 (Mar. 12, 2007), 20275 (Sept. 12, 2007) and 20333 (Oct. 15, 2007)


Modified: 12/01/2011