Crown witnesses who testified at the long-running fraud trial of three former Nortel Networks Corp. executives provided a "wealth of evidence" that exonerated the accused men, while none offered any evidence of an accounting fraud at the technology company, defence lawyers argue in new court filings.
In written submissions filed Friday with Mr. Justice Frank Marrocco of the Ontario Superior Court, lawyers for the Nortel executives have outlined the closing arguments they will make orally when submissions are presented in court beginning Sept. 27.
The defence argues "there was not a single witness" who testified the three men asked them to do anything dishonest or create false financial statements, and said the Crown's fraud theory would have required an implausibly large conspiracy involving dozens of employees.
"The Crown case has failed to establish that anyone at Nortel deliberately created materially false financial statements," the defence argues.
The defence team – led by David Porter, who is representing Mr. Dunn – argues the Crown did not prove a fraud occurred at Nortel, and said the Crown's closing arguments "largely ignore the wealth of evidence from its own witnesses that exonerates the accused or leaves the Crown's burden of proof undischarged."
The court filings mark the first time defence lawyers have laid out the full details of their position in the case. While lawyers made a brief opening statement at the beginning of the trial – calling the Crown case "preposterous" – they did not address all the Crown allegations in detail. The defence called no witnesses of their own during the trial.
Former Nortel chief executive officer Frank Dunn, former chief financial officer Douglas Beatty and former controller Michael Gollogly are each charged with two counts of fraud for allegedly manipulating Nortel's accounting reserves in 2002 and 2003 to push the technology company to profitability in order to trigger special bonus payments for themselves.
Their 338-page joint closing submission – which is accompanied by a 60-page supplement as well as three individual closing submissions on behalf of each of the accused – fills in many blanks about how the men account for their actions in 2002 and 2003, including an explanation of events in each of the three key quarters in which the men are accused of manipulating Nortel's financial statements.
The lawyers said the treatment of accounting reserves at Nortel was an honest attempt by the three men to get the accounting right. Many of the decisions involving the use of accounting reserves were ultimately reversed in two subsequent restatements of Nortel's books, but the defence says the reversals involved honest mistakes and not deliberate fraud.
"Errors in accounting treatment do not prove fraud," the filing says.
They also said the decisions were supported by auditors from Deloitte & Touche, who were were aware of all the accounting entries and were provided with all the information they required "and more."
The Crown's written version of its closing arguments in the case, filed in August, said the three men improperly inflated Nortel's balance sheets with "hundreds of millions of dollars" in excess accounting reserves and then used those reserves to manage earnings and smooth income in the first two quarters of 2003 to reach targets needed to trigger their own bonus payouts.
"If 'errors,' they were convenient to the accused, as each was substantially enriched by them in 2003," the Crown filing says.
The prosecution team, led by Crown attorney Robert Hubbard, argues the accounting acts were deliberate, citing internal "road map" documents that outlined profit targets for the company and suggested how shortfalls in income could be "plugged" using accounting reserves. Because the documents were not shared with auditors or the board of directors, the Crown contends only the three accused knew Nortel's results were false.
The Crown also argues that it is irrelevant whether the company's auditors knew about the use of accounting reserves, saying it "would not exculpate" the accused if it turns out others were aware of improper actions. All that is relevant, the Crown argues, is whether the investing public was given false information about the company's financial state.