The dismissal of fraud charges against three former executives at Nortel Networks by an Ontario court has been characterized a few ways. One editorial called it a victory for common sense, another declared the case a "great flapping absurdity of corporate and regulatory excess and governance righteousness." Some observers said it was a black mark for Canadian regulators.
No matter your opinion, one thing is for certain. Ontario Superior Court Justice Frank Marrocco said the burden of proof had not been met to label former chief executive Frank Dunn, former chief financial officer Douglas Beatty and ex-controller Michael Gollogly fraudsters.
"A reasonable doubt is not a far-fetched or frivolous doubt. It is not some fanciful doubt. It is not a doubt based upon sympathy or prejudice," Marrocco wrote in a 142-page decision on Monday. "Rather, it is an honest and fair doubt based on reason and common sense. It is doubt that logically arises from the evidence or lack of evidence."
The three men were found not guilty of fraudulently misrepresenting Nortel results between 2000 and 2004. The case hinged on charges that the executives manipulated accounting reserves to show profitability, thus triggering more than $12 million in bonuses.
Greg Lafontaine, the lawyer for Beatty, said he was relieved the case is finished.
"It was a long, difficult fight. The result was the correct one. My client was acquitted," he said.
The following is a condensed and edited version of the interview.
In your words, what was the root of the prosecution's case and why didn't the judge buy it?
The theory was that there were accounting entries that were made intentionally and falsely so as to trigger large bonus payments. The judge didn't buy it because the evidence was very clear that the accounting entries were not inappropriate accounting entries and had all been cleared by Nortel's audit committee and their auditors Deloitte & Touche.
In the aftermath, the outcome has been characterized in different ways. What's your view?
These three men had the misfortune of being the three who were still around when the ship sank ... A lot of people in the public lost a lot of money over Nortel's collapse and there was unfortunate desire to make somebody pay, to make somebody accountable regardless of whether they in fact had done anything wrong.
Can you talk a little bit about how the attribution of motive is a tricky matter?
Those who have reacted most loudly and most negatively, in my view, are those who have the most limited and superficial understanding of the actual facts. On any examination of the actual evidence of what happened at Nortel, it is abundantly clear that the three men who were put on trial did absolutely nothing to defraud Nortel, but were doing their very best to try and save the company from its ultimate collapse.
Financial markets have gone through a lot since the downturn, can you place this case in the context of public outrage during the crisis
People lost money and there's a desire to make somebody accountable for that. There's also a criticism that we aren't as tough as the United States on white collar crime where the sentiment seems to be that if this was prosecuted in the U.S. there would've been findings of guilt. Maybe that's a problem with the U.S. system if people are found guilty of serious criminal offences based on a mob-type view in the absence of evidence that they actually did anything wrong.
Why is it so important to be a strong advocate where white collar crime is concerned?
It's important to be a strong advocate for anybody charged with a criminal offence because often times things are not what they seem. It is not unusual for somebody who is completely innocent of any wrongdoing to end up having the misfortune of being charged with a crime. In this case, there's a very common misperception that all three individuals ended up receiving large bonus payments during the period of Nortel's collapse. I say misperception because my client, once there was an issue taken with some of the accounting, declined to take significant portions of the bonuses that were triggered by Nortel reaching its targets. In other instances, took the bonuses entirely in Nortel stock, which he held onto until it was worthless in value. That's how committed he was to Nortel. That's how wrong the public perception is with respect these three men walking away with millions of dollars while Nortel was drowning.
What signal does a decision like this send to financial markets in this day and age, what's the moral of this story?
I don't know that it sends one at all. But to the extent that there is a message ... my view is that the Crown has to be very careful, the police has to be very careful in determining what charges are to be laid and when a prosecution is to be seen through until the end, to select those cases where there actually is a reasonable prospect of a finding of guilt. Because if you're concerned that there will be a negative message by an acquittal, don't prosecute cases where the evidence of guilt is as incredibly weak as it was in this case.