U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20275 / September 12, 2007
Accounting and Auditing Enforcement Release No. 2676 / September 12, 2007
SEC v. Frank A. Dunn, Douglas C. Beatty, Michael J. Gollogly, MaryAnne E. Pahapill (a.k.a. Mary Anne Poland), Douglas A. Hamilton, Craig A. Johnson, James B. Kinney and Kenneth R.W. Taylor, Civil Action No. 07 CV 2058 (S.D.N.Y.)
SEC Charges Four Additional Former Officers of Nortel Networks Corporation in Financial Fraud Scheme
The Securities and Exchange Commission today charged four more former officers of Nortel Networks Corporation with engaging in accounting fraud by manipulating reserves to manage Nortel's earnings. The Commission filed an amended complaint in SEC v. Dunn, et al., Civil Action No. 07 CV 2058 (S.D.N.Y.), to add as defendants Douglas A. Hamilton, Craig A. Johnson, James B. Kinney and Kenneth R.W. Taylor, who were the former vice presidents of finance for Nortel's Optical, Wireline, Wireless and Enterprise business units, respectively. The Commission's original complaint, among other things, charged three former corporate officers of Nortel — CEO Frank Dunn, CFO Douglas Beatty and Controller Michael Gollogly — with directing the earnings management fraud.
Among other allegations, the amended complaint alleges that Hamilton, Johnson, Kinney and Taylor engaged in the following misconduct:
The amended complaint charges Hamilton, Johnson, Kinney and Taylor with violating and/or aiding and abetting violations of the antifraud, reporting, books and records and internal controls provisions of the federal securities laws. The Commission seeks a permanent injunction, a civil monetary penalty, an officer and director bar, and disgorgement with prejudgment interest against each of these defendants.
In its original complaint, filed on March 12, 2007, the Commission alleged that (1) Dunn, Beatty and Gollogly learned that the Company was carrying massive amounts of excess reserves and then directed the alleged reserve manipulations to meet earnings targets, fabricate profits and pay performance-related bonuses, and also (2) that Dunn, Beatty and former Assistant Controller MaryAnne Pahapill altered Nortel's revenue recognition policies from late 2000 through January 2001 to accelerate revenue to meet publicly announced revenue targets. See Litigation Release No. 20036 (March 12, 2007) / Accounting and Auditing Enforcement Release No. 2576 (March 12, 2007).