Nortel CFO Quits, Firm Says He Broke Stock Rules

Nortel Networks

The Canadian telecom equipment maker, one of the world's biggest, took pains to stress in a statement that the transactions related to Hungle alone and were not part of a wider, Enron-style accounting or financial scandal.

Nortel said the 20-year company veteran sold stock in his U.S. 401K retirement plan before the company issued an earnings warning on March 27 of last year.

At the time, Hungle was a vice-president of finance and business development for the Americas and had insider knowledge about the company's finances. The certified management accountant was named chief financial officer on Oct. 2.

Nortel said Hungle then bought shares back at lower prices before the firm issued earnings guidance on Dec 21. The stock traded higher after the guidance.

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Global markets have been on edge in recent weeks for signs of financial and accounting problems similar to the ones that sank energy-trading giant Enron, including indications of insider trading.

Nortel said securities regulators in the United States and Canada had been voluntarily notified about the transactions.

Nortel chief executive Frank Dunn was named as the telecoms equipment maker's acting chief financial officer.

"I will be working with the board of directors to appoint a new chief financial officer. This matter is unfortunate, but the actions we have taken are in the best interests of Nortel Networks," Dunn said in a statement.

"Let me emphasize that this matter solely relates to the personal investment transactions made by Terry Hungle and does not relate to the business, operations or financials of Nortel Networks," he added.

The trades in question took place within Hungle's 401K plan, a U.S. retirement savings scheme.

Nortel said that in March last year, Hungle transferred an investment of about $78,500 from a stock fund invested primarily in Nortel's common shares to a fixed-income fund.

On March 27, Nortel issued a first-quarter earnings statement that knocked the stock down from C$26.30 to C$21.48 in one day.

The company added that in December Hungle transferred an investment of about $86,300 from the fixed income fund back to the stock fund.

On Dec. 21, the company issued a fourth-quarter earnings guidance that was viewed positively by many in the market. The stock rose from C$11.25 to close at C$13.78 on Jan. 7.

Nortel shares closed up 86 Canadian cents at C$10.93 on the Toronto Stock Exchange on Monday. In New York, the stock rose 55 cents to $6.84.

Nortel said the transactions took place outside "trading windows" imposed by the company on certain officers. Such rules usually apply to executives with insider information.

The U.S. Securities and Exchange Commission declined to comment on the matter. But a spokesman for the Ontario Securities Commission, Canada's main equities watchdog, told Reuters that Nortel approached it recently with the news.

"They have notified us and we will be taking the appropriate action," OSC spokesman Frank Switzer said.

"Basically, what they outlined in the news release is what they shared with us."

According the a company biography, Hungle joined Nortel more than 20 years ago, working on assignments in Europe, Canada and the United States.

Nortel said he played a key role in realigning the European business during a two-year assignment. He also played a lead role in the integration of Bay Networks after it was bought by Nortel.

The company said Hungle is married and has two grown children. He and his family live in Dallas, Texas.

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