Crown’s Nortel case falls flat, defence says

Witness didn’t support charges, lawyer says

The Crown’s own witnesses have contradicted the prosecution’s theory of an elaborate accounting fraud at Nortel Networks Corp. orchestrated by senior executives, defence counsel said Tuesday.

“There was not a single witness who said any of the accused asked them to do anything dishonest,” David Porter said in closing submissions in a trial that began last January at Ontario Superior Court in Toronto.

“There was not a single witness who said that any of the accused asked or directed them to create false financial statements. There is not a single witness who could point to a single altered or falsified document.”

Porter cited examples from testimony that he said show accounting entries that reversed a loss and allowed bonus payouts at Nortel had proper support under accounting principles and were certified by external auditors.

Porter also argued that any accounting reserves on Nortel’s books that were deemed excessive or incorrect were the result of error, not dishonesty and were made in a good-faith attempt to fully account for any future risks. .

And he said late accounting entries in the fourth quarter of 2002 were not intended to fabricate a profit but were made to account for any unexpected expenses.

“In the circumstances Nortel faced, it was entirely appropriate to ensure all risks were covered,” Porter said.

Porter listed evidence that he said amounted to “badges of innocence,” including testimony that showed the audit committee was told of Nortel’s release of liability reserves that triggered an operating profit in early 2003.

He said the evidence also shows the defendants agreed to a balance sheet review that led to two restatements of Nortel’s ledger.

“These are badges of innocence in a case completely devoid of badges of fraud,” Porter said.

Porter said the case against the men hinges on whether balance sheet and income statement entries “were believed to be justified,” arguing that an honest belief precludes a finding of fraud.

Porter, who represents Dunn but delivered closing submission on behalf of all three defendants, said massive losses, goodwill writedowns and staff downsizing at the once high-flying telecom gear maker at the time of the alleged fraud made it exceedingly difficult to “get everything right.”

He added restatements do not prove fraud, calling them increasingly common and largely reflecting an organization’s desire to correct error.

In closing arguments last week, lead prosecutor Robert Hubbard said the defendants, former Nortel chief executive Frank Dunn, former CFO Doug Beatty and ex-controller Michael Gollogly managed accounting reserves to meet earnings targets that were otherwise unattainable.

He said the scheme only became known when documents were discovered as part of an independent forensic review by U.S.-based investigative law firm Wilmer, Cutler, Pickering.

Nortel reported that its financial statements were “tainted by earnings management” only after April 2004 when the accused were dismissed from the company, Hubbard added.

The RCMP laid fraud charges in 2008.

The defence is expected to conclude it closing arguments this week with Justice Frank Marrocco likely to reserve his decision.