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ArticleNortelTorontoStar - Driving from a profit to a loss...

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Driving from a profit to a loss Report alleges ex-CEO Frank Dunn and key executives improperly shifted loss provisions to achieve 2002-03 financial targets and trigger bonuses Originally Published Jan. 13, 2005. 06:56 AM in the Toronto Star TYLER HAMILTON TECHNOLOGY REPORTER Those who have worked with Frank Dunn know that the former chief executive of Nortel Networks Corp. was a finance man to the core, focused on numbers and driven to meet targets. The damning report filed this week with the U.S. Securities and Exchange Commission and the Ontario Securities Commission reached the same conclusion, alleging in alarming detail that Dunn and key senior finance officers concocted a plan that led to the manipulation of 2003 profits, triggering a lucrative bonus payout for the executives involved. The report, which contains the findings of a 15-month independent review, was prepared by Washington-based law firm Wilmer Cutler Pickering Hale and Dorr LLP. It was part of Nortel's 2003 audited financial report. What follows is a summary of what the report concludes. The subjects of the report have not commented on the document. "When Frank Dunn became CFO in 1999, and then CEO in 2001, he drove senior management in his finance organization to achieve (earnings before tax) targets that he set with his senior management team," according to the report. Concern over accounting irregularities at Nortel first emerged in July 2003, when auditor Deloitte & Touche LLP alerted the company's audit committee to "deficiencies in documentary support" for certain provisions and accruals on Nortel's balance sheet. An inquiry was launched that summer, but early on Dunn and his senior financial officers, all of whom have since been fired from Nortel, blamed the irregularities on a downturn in the telecommunications sector. Nortel was forced to axe 60,000 employees, or two-thirds of its workforce, in the aftermath. Remaining employees in Nortel's finance department were forced to take on extra work with no bonuses, and this had a dramatic impact on their morale. Dunn and members of his management team, according to the
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