The United States' governmental authorities continue to crack down on various forms of accounting fraud within the tech industry.

The Securities and Exchange Commission (SEC) today charged four more former officers of Nortel Networks Corp. with engaging in accounting fraud by manipulating reserves to manage Nortel's earnings. The commission filed an amended complaint in SEC v. Dunn, a case pending in the U.S. District Court for the Southern District of New York, to add as defendants Douglas A. Hamilton, Craig A. Johnson, James B. Kinney and Kenneth R.W. Taylor, who were the former VPs of finance for Nortel's optical, wireline, wireless and enterprise business units, respectively.

The SEC's original complaint, filed on March 12, charged three former corporate officers of Nortel — CEO Frank Dunn, CFO Douglas Beatty and controller Michael Gollogly — with directing the earnings management fraud.

"Today's action shows that the commission will hold accountable not only wrongdoers in the corporate suite, but others whose actions make a company-wide financial fraud possible," Linda Thomsen, the director of the SEC's enforcement division, said in a statement.

The four defendants charged today allegedly colluded with Nortel's former top executives to improperly maintain, establish and release reserves in order to manipulate earnings and fabricate a return to profitability in Q1 2003. According to the charges, the defendants received "significant compensation" while falsifying the results. 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 SEC said it seeks a permanent injunction, a civil monetary penalty, an officer and director bar, and disgorgement with prejudgment interest against each of these defendants.

When reached for comment by Electronic News, a Nortel spokesman said that while the company would not comment on the specific charges against its former officers, he asserted that the complaint deals with the “old Nortel.”  “We now have a new management team and new governmental processes,” the spokesman said, adding that Nortel intends to fully cooperate with the SEC throughout the current proceedings.

The former Nortel executives are not the only tech industry heavyweights that have come under the glare of the SEC's spotlight in recent months. In July, the SEC filed a criminal indictment against Robert J. Therrien, the former chairman and CEO of Brooks Automation Inc., with income tax evasion. Also that month, the SEC filed charges against KLA-Tencor and its former CEO Kenneth Schroeder for allegedly engaging in a scheme to fraudulently backdate stock option grants. And in August, Bay Area attorney Lisa Berry was charged by the SEC with routinely backdating option grants from 1997 to 2003, first as general counsel of KLA-Tencor Corp. and then as general counsel of Juniper Networks Inc.

By: DocMemory
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