Nortel and its principal subsidiary, Nortel Networks Limited, will pay $35 million to settle civil fraud charges with the Securities and Exchange Commission and will take steps to prevent fraud in the future, an Associated Press report, quoting the SEC and the company, said.
The Associated Press report said the settlement was announced as the SEC filed a lawsuit in US District Court in Manhattan, accusing Nortel Networks and Nortel Networks Limited of committing revenue fraud and earnings management fraud that allowed it to meet unrealistic earnings guidance it provided Wall Street in 2000, 2002 and 2003.
The telecom equipment maker agreed to provide the SEC with quarterly written reports detailing its progress in implementing a remediation plan and actions to address weaknesses in its internal controls, the report said.
The fraud in 2000 enabled Nortel to appear to be 'weathering an economic downturn better than its competitors,' the SEC said. It added that Nortel was able to make it appear it had stabilized its operations and returned to profitability.
The Toronto-based company said in a statement that the deal was part of a broader effort to turn around its business that has included a settlement with the Ontario Securities Commission and the resolution of shareholder class actions.
The SEC said Nortel's record keeping became fraudulent as the company responded in September 2000 to a softening of orders amid a general economic downturn that caused it to miss internal projections by hundreds of millions of dollars, the report said.