Nortel May Seek Repayment Of Bonuses

The Canadian telecom equipment maker fired three top executives, including its chief executive, in April "for cause." At that time, the company announced plans to restate its financial reporting going back to 2001.

Since then, Nortel's audit committee and outside auditors have been overseeing a review of the company's finances.

The Wall Street Journal, citing people familiar with the matter, reported Friday that the board had found Nortel overstated its reserves as part of a "cookie jar" accounting manipulation, that let managers and executives grab past reserves from a financial "cookie jar" to make income look better than it was. As a result, the company began reporting profits after years of losses, allowing executives to collect bonuses.

The board has found $303 million in liabilities that were in some way inaccurate, the paper reported, citing anonymous sources.

Nortel's stock fell 26 cents, or 5.4 percent, to close at $4.56 a share Friday on the New York Stock Exchange.

The company would not comment on the Journal story. "Due to the ongoing nature of the independent review, regulatory and criminal investigations, it would be inappropriate," said Tina Warren, a company spokeswoman.

Nortel has been providing biweekly updates of its investigation to investors. The updates have revealed little of the audit committee's findings, instead setting target dates for when it will release revised financial reporting.

In the latest dispatch Tuesday, Nortel, which has not reported audited financial statements since last July, said it would be able to update investors on its restatements by the end of this month.

The company paid at least $70 million in bonuses when it reported it had returned to profitability in 2003, estimated Lehman Brothers analyst Steve Levy. About $20 million went to executives, the rest went to employees, who were paid about $1,000 to $2,000 each.

"If you want to establish credibility with the Street and you found out they (the executives) manipulated the numbers to pay bonuses, you have to go after them," Levy said.

Nortel's troubles stem from restructuring charges it took in 2001, Bernstein and Co. telecommunications analyst Paul Sagawa said at the time of the firings.

"They took bigger restructuring charges than (competitors) Lucent and JDS Uniphase," Sagawa said. "In 2003, Nortel started posting numbers that were much better than Lucent's."

The company used the charges to set aside larger reserves than it needed, then used those reserves to boost earnings. The practice is "shady" he said, but whether it's illegal is unclear.

The company is being investigated by the U.S. Department of Justice, the Securities and Exchange Commission and the Ontario Securities Commission.

The costs and settlements from possible criminal charges and civil suits could total $200 million to $300 million, Steve Kamman, an analyst for CIBC World Markets, wrote in a report issued Friday.

He said in an interview that regulators were likely to go easy on the company and its current management. "No one has a reason to punish the people still at the company, unless there's been really egregious conduct, because the senior people have taken the fall."

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