Nortel Fraud Trial Begins Against Former Execs

Prosecutors allege three executives worked together to falsify Nortel's records to make it look a half billion dollars more profitable than it truly was.

TORONTO (AP) — A fraud case against three former Nortel Networks executives who are accused of falsifying financial reports began Monday, eight years after they were fired.

Former chief executive Frank Dunn, chief financial officer Douglas Beatty and corporate controller Michael Gollogly were dismissed from the company in 2004. Nortel has been winding down as a company since seeking bankruptcy protection in 2009 after a 127-year history in Canada.

Prosecutor Robert Hubbard alleged the three men worked together to falsify Nortel's records and statements to make the company look more profitable than it was. Hubbard said Nortel's financial statements were incorrect by "over half a billion Canadian dollars" in the first and second quarters of 2003.

Each of the three pleaded not guilty.

During the 1990s telecom and Internet boom, Nortel had more than 95,000 employees.

At one point in 2000 it accounted for one-third of the market value on the entire Toronto Stock Exchange and had a market capitalization of $297 billion. Nortel's stock has since been delisted and is worthless.

Nortel was founded as Northern Electric and Manufacturing in 1895, supplying equipment for Canada's telephone system. The company pioneered digital network switches in the 1970s and grew into a major telecommunications supplier after the U.S. breakup of AT&T in 1984 expanded competition in the industry.

By 1997, Nortel had become the world's second-largest telecommunications gear maker behind AT&T spinoff Lucent Technologies.

But Nortel grew too quickly, overpaying for acquisitions with its inflated stock. The company was bleeding revenue as the dot-com bubble burst and spending on network gear vanished in the previous decade.

After the dot-com bust, Nortel had problems of its own: the accounting crisis that sparked shareholder lawsuits, regulatory investigations and the firing of key executives, including Dunn.

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