With Nortel Network Corporation’s announcement yesterday of its firing of three top executives “for cause” (i.e., “we’re not paying you nuttin’ further”), another corporate accounting scandal appears to be warming up quickly. Nortel is North America’s largest telecommunications manufacturer.
Nortel‘s board fired President and Chief Executive Officer Frank Dunn and two other senior officials, Douglas Beatty (former CFO) and Michael Gollogly (former controller). Moreover, the company announced that there would be a sharp downward revision of its profit for last year.
The move drove the Brampton, Ontario-based company’s shares down 28% on the stock market yesterday, and raises questions about how severe the telecommunications-equipment maker’s problems really are. After restating results in November, Nortel announced last month that it would restate its past results again and delay filing its 2003 financial statements with securities regulators. The Securities and Exchange Commission and the Ontario Securities Commission, Canada’s main regulator, are currently investigating Nortel’s accounting.
Nortel named William Owens, 63, as its new president and chief executive. Mr. Owens, who has been a Nortel director since 2002, was previously the chairman and chief executive of Teledesic LLC, a satellite communications company. He was also vice chairman of the U.S. Joint Chiefs of Staff and Commander of the U.S. Sixth Fleet during Operation Desert Storm.
Nortel said yesterday that while its audit committee “has not yet determined the full extent of the adjustments that will be required, it expects “no material impact to prior period revenues” and “no material impact” to its Dec. 31 cash balance of $4 billion. In its first restatement filed last November, Nortel said $952 million of liabilities, mainly accruals and provisions, recorded on its June 30, 2003, balance sheet should have been recorded in earlier financial statements. A spokeswoman for Nortel’s longtime auditor, Deloitte & Touche, said it is “a speculative question” whether the firm should have caught Nortel’s accounting problems at an earlier stage.
Here’s betting that Deloitte representatives will have an opportunity to answer that “speculative question” in the various securities fraud class action lawsuits that will result from the foregoing events.