Mounties open Nortel's books

The Royal Canadian Mounted Police formally launch a criminal investigation into company's accounting practices.

Marguerite Reardon Former senior reporter
Marguerite Reardon started as a CNET News reporter in 2004, covering cellphone services, broadband, citywide Wi-Fi, the Net neutrality debate and the consolidation of the phone companies.
Marguerite Reardon
2 min read
Nortel Networks' accounting mess is getting messier: The Royal Canadian Mounted Police have launched a formal criminal investigation into its accounting practices.

Nortel announced late Monday that it had received a letter from the Mounties, informing it of the criminal investigation. The company said it will cooperate fully. The Mounties have already been informally looking into Nortel's accounting practices, the company said.

The news of the investigation comes just days before the telecommunications equipment maker is expected to release preliminary financial results for the first two quarters of 2004.

The Brampton, Ontario-based company has not yet stated financial results for this year. It has been re-examining earnings and plans to restate earnings for 2001, 2002 and 2003. Final figures for 2003 are expected to be filed by the end of September. The company announced two weeks ago that it would release unaudited results for the first half of 2004 on Aug. 19.

The Mounties aren't the only ones investigating Nortel. Since March, when the company announced that it would be cutting its stated 2003 profits of $732 million by half, several agencies have launched probes.

The U.S. Attorney's Office in Texas, where Nortel is headquartered in the United States, launched its own criminal investigation in May. The U.S. Securities and Exchange Commission and the Ontario Securities Commission are also investigating.

In April, the company fired three top executives, including President and CEO Frank Dunn.

Despite its accounting woes, Nortel is still winning deals. Last week, it announced a major contract to supply wireless networking equipment to Bharat Sanchar Nigam, the largest telephone provider in India. The deal is expected to generate more than $500 million in sales for Nortel over the next several years. It is the first major wireless contract the company has won in India.

But financial analysts have been cautious about the company's prospects, as uncertainty surrounding the financial scandal looms.