It may take months before the allegations against Frank Dunn, Doug Beatty and Michael Gollogy are proved either way but the chief prosecutor, Robert Hubbard, opened his arguments by making it clear that the Nortel Three manipulated Nortel’s books to turn a loss into a profit during the second quarter of 2003.

Hubbard also claimed excess accruals were shifted from Nortel’s income statement in avoid a profit in late-2002, which would have triggered bonuses to employees but not senior executives.

At the core of the allegations against the Nortel Three is they cooked the books to trigger a $5-million bonus plan. Dunn, Beatty and Gollogy were fired “for cause” in 2004.

Dunn was replaced by Bill Owens, a former U.S. Navy Admiral, with little telecom experience. He handed the ball to Mike “Mike Z.” Zafirovski who led the company into bankruptcy protection and, eventually, a massive asset liquidation.

For more on the trial, here are some links:

- Nortel executives shifted accounting funds to achieve results (Globe & Mail)

- Crown Likens Nortel Fraud to widespread Sudoku (Montreal Gazette)

- In search of one material lie (Ottawa Citizen)

As much as the Nortel Three may have allegedly cooked the books to trigger a bonus program, it’s a small chapter in a tragic story about how a world-class telecom supplier found itself become an industry laggard before it tumbled into bankruptcy protection and sold off its assets to a hungry gr0up of buyers.

As much as it would be easy to blame Dunn for Nortel’s financial troubles, his successors – Bill Owens and Mike Zafirovski – deserve as much scrutiny and blame for the company’s ultimate demise. A series of bad decisions, strategic moves that should have happened, and bad timing cut Nortel down at the knees.

So while the trial will attract a lot of attention, there’s a much bigger story that should not be forgotten.

Describing them as “Unemployed, and unemployable”, Bagnell said Dunn, for example, has given $2.1-million to his law firm, McCarthy Tetrault. Of that amount, at least $700,000 borrowed from seven former Nortel colleagues, including ex-Nortel CEO John Roth and former chief marketing officer Ian Craig.

According to the Toronto Star, the Justice Frank Marrocco is expected to rule Monday on a defense motion asking for more details about the fraud allegations. If he accepts the motion, the trial’s opening remarks would be delayed.

Bagnell suggests that Dunn, Beatty or Gollogly are expected to take the stand at the trial.

The Crown said the charges were eliminated because they were similar to other charges. The Nortel Three will stay face two charges each of fraud and one count of falsifying financial documents. The charges were laid after Dunn, Beaty and Gollogy allegedly carried out a scheme to trigger lucrative financial bonuses.

If indicted, the Nortel Three could stay faces up to 14 years in jail.

While the trial could last awhile, one of the most interesting elements will be the public appearances of the Nortel Three, who have kept a low profile since they were cut loose by Nortel.

Dunn, the bean-counter who became CEO after John Roth left Nortel, has not been in the spotlight since he sold his 10,600 sq. foot “dream house” in 2008. The house, located on 1.6 acres in Oakville, Ont., featured six bedrooms, a three-car garage and 56 metres of shoreline.

For more on the pre-trial activity, check out this story in today’s Globe & Mail.

The trial is to begin Monday in Ontario Superior Court, but defence lawyers have requested a pre-trial hearing on Thursday to seek detailed disclosure from the Crown of “particulars” in the case, which refers to a detailed account of what is being alleged in the case.

http://www.theglobeandmail.com/globe-investor/crown-expected-to-amend-charges-facing-ex-nortel-execs/article2298058/?utm_medium=Feeds%3A%20RSS%2FAtom&utm_source=Home&utm_content=2298058

The National Post’s Drew Hasselback provides a good summary of the charges, which were laid after Dunn, Gollogy and Beatty allegedly cooked the books to trigger bonuses.

Pre-trial hearings started on Thursday in downtown Toronto.

According to the Toronto Star, Justice Frank Marrocco is scheduled to preside Thursday over motions, including those by the defence, in an open-court hearing at the Superior Court of Justice of Ontario. A trial before the justice starts on Jan.16.

The legal proceedings are focused on how Dunn, Nortel’s ex-CEO, Beatty (the ex-CFO) and Gollogy, the ex-controller, allegedly cooked the books to trigger large bonuses.

The charges against them includes two counts of fraud affecting a public market, two counts of falsifying books and documents and three counts of issuing a materially wrong prospectus.

With a mountain of documentation already filed, it will be fascinating to see if what really happened at Nortel emerges.

You have to remember that Nortel was scrambling to recover following the crash of the dot-com and telecom markets in 2001. After Dunn replaced John Roth as CEO, Nortel made a remarkable return to profitability.

But things went pear-shaped in March 2004 when Nortel announced it would delay filing audited financial statements for the preceding year.

After Dunn was fired “with cause”, he was replaced by ex-U.S. Navy Admiral Bill Owens despite his lack of telecom experience. Owens was subsequently replaced by Mike Zafirovski, who led the company down the path into bankruptcy protection and a massive asset sale.

While it’s left to be seen whether Dunn, Beatty and Gollogy will be found guilty, the bigger story remains the sad and painful demise of Canada’s flagship telecom company.

In a stunning and surprising decision (tongue firmly in cheek), the government has decided that everything about the $4.5-billion sales of Nortel’s patents is okay-dokay.

“Officials have examined the applicable rules and threshold values under the Investment Canada Act as they apply to Rockstar Bidco LP’s proposed acquisition of Nortel’s patents,” Industry Minister Christian Paradis said in statement Tuesday. “Based on the information provided by the investor and Nortel’s 2010 audited financial statements, the acquisition of the Nortel patents is not subject to review for net benefit under the act.”

For more, check out this Toronto Star story.

Seriously, it would have been shocking if the government had decided to do a review given they’ve let every single Nortel asset be sold without moving a finger. Why would a treasure-trove of world-class patents warrant different kind of behaviour?

Wrong.

Instead, 12,000 pensioners recently received notification that their there will be cutback in benefits. This will reduce benefits by 18% for non-union employees in Ontario. Employees who worked outside Ontario will see cuts of 31% (non-union) and 25% (union)

Nortel has about $7.5-billion in cash after the patent sales.

For more, check out this Toronto Star story.

According to the Toronto Star, Industry Minister Christian Paradis has requested staff to see if the deal complies with the Investment Canada Act.

Keep in mind, this is the same government idly watched as Nortel sold asset after asset to foreign companies. We’re talking about Canada’s flagship’s high-tech company with more than 100 years of history behind it. Despite calls for Ottawa to get involved or provide financial support, nothing was done.

As a result, the Nortel empire was dismantled piece by piece.

Now, Ottawa wants to do a review? Seriously?

Who’s George Riedel and why should we be excited? Well, he’s Nortel chief strategy officer, who has overseen the company’s assets sales after CEO Mike Zafirovski abandoned ship in the wake of the disappointing and puzzling decision to surrender rather than fight on.

Now that the sale of Nortel’s 6,000+ patent portfolio has been sold to a consortium for a staggering $4.5-billion, the tally from all the asset sales now stands at $7-billion to $7.5-billion. Good work, George!

Keep in mind that Nortel went into bankruptcy protection with $4.5-billion in debt so being able to raise $7-billion from holding a telecom garage sales is a job well done.

And while Riedel will soon be looking for work, at least he stuck around to see things through, which couldn’t have been an easy assignment.

The big question now is how much of the asset sale booty will go to ex-employees who aren’t debt holders? With Nortel’s bankruptcy protection extended until December, there is a lot of work to be done before the company’s affairs are finally in order.