OTTAWA — Bitter memories of the collapse of Nortel Networks, once Canada’s most valuable corporation, will be revived on Monday as the fraud trial of three of its former top executives begins.
Prosecutors contend that after Nortel suffered steep financial losses in the dot-com crash at the turn of the century, its postcrash bookkeeping was also fraudulent. On trial are Frank A. Dunn, Nortel’s former chief executive; Douglas C. Beatty, the former chief financial officer; and Michael J. Gollogly, the former controller. The three men were dismissed in 2004 and the company has since been largely broken up and sold.
All three men deny that they committed any fraud.
Nortel’s fall has spurred lingering resentment in Canada. Many of its shares were held by small investors who saw their value wiped out. The collapse also led to an important player in Canada’s technology sector’s coming under foreign control, even if many of the companies that bought Nortel’s assets, like Ciena of Linthicum, Md., maintain substantial operations staffed by former Nortel employees in Canada.
As is the custom in Canada, prosecutors will not publicly detail their case against the former executives until the trial begins in the Ontario Superior Court of Justice in Toronto. But their comments at pretrial hearings, and the charges themselves, indicate that the complex case largely rests on the government’s accusation that the three executives manipulated the company’s financial statements to create a slim and fictional profit. That profit, in turn, led to about $5 million in performance bonus payments to the three accused, prosecutors contend.
Brian H. Greenspan, one of the lawyers representing Mr. Gollogly, said that there are no allegations that the action of the executives caused the company’s collapse. Nortel filed for bankruptcy protection in January 2009.
“The trial has nothing to do with the demise of Nortel,” Mr. Greenspan said on Friday. “It has nothing to do with the bankruptcy; it has nothing to do with the investors who lost money during the fall of Nortel.”
He said that Mr. Gollogly had not manipulated the financial statements to obtain bonuses but “made an honest attempt to get the books in good order.”
He added, “It’s not as if a restatement means something is criminal.”
Gregory L. Lafontaine, the lawyer for Mr. Beatty, said, “Our position is that there was absolutely no fraud committed here by anybody, and we’re confident that the evidence will bear that out.”
Mr. Dunn’s lawyer did not respond to a request for comment but has said in earlier statements that his client had not committed any fraud.
The case is expected to be complex. Prosecutors have turned over about four million documents to the defendants, and the trial is likely to take several months.
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