130
[1110] The September 19, 2003 Outlook referred to by Mr. Gollogly in his draft letters indicates
that this sum is made up of $264 million, the release of which was triggered in Q3, and $127
million the release of which was triggered in earlier quarters of 2003.
[1111] The Crown also highlighted a reference in Mr. Gollogly’s diary which the Crown
suggested demonstrated his opinion that the accounting oversight in Q3 03 was a “joke”.
Specifically, Mr. Gollogly indicated, in a diary entry, dated October 7, 2003, “intense scrutiny on
Q3-it is a joke”. This reference occurs on a page which is entitled “LC\Region Finance Call”.
The diary entry seems to be recording comments that were made during this telephone call. It is
not clear from the entry that the comment represents Mr. Gollogly’s view or one of the callers
that it is a joke to suggest that there is intense scrutiny on Q3.
[1112] The Crown also relied on a note made by Mr. Beatty. This note states “Q3 was
‘Amnesty’ time from now on people will be fired for not following proper accounting practices”.
The Crown asked me to interpret this reference as a statement by Mr. Beatty that Q3 was
everyone’s last opportunity to manage earnings by releasing accrued liability balances to the
profit and loss statement.
[1113] Mr. Beatty’s note is dated September 30, 2003 and the document purports, on its face, to
be notes of the Finance Conference Call. The note appears under a bullet point entitled “what is
needed going forward”. The first item that is needed, according to the note, is an understanding
of how much the world has changed from a regulatory point of view. The second thing that is
needed, according to the note, is that Q3 was amnesty time and that from now on people will be
fired for not following proper accounting practices. The third item that is required, according to
the note, is that if you are in doubt about what to do, you are to ask Karen’s team who have the
final say. The note is dated September 30, 2003, which is the last day of Q3.
[1114] With respect to Mr. Beatty’s note, it seems to me to be more reasonable to construe the
statement, assuming for a moment it was made by Mr. Beatty, as a promise not to fire employees
who disclose, in Q3 03, items which should be removed from the balance sheet. This would
certainly be consistent with the worldwide effort to comprehensively review the balance sheet.
[1115] The Crown also relied upon the fact that the September 19, 2003 Outlook prepared by
Mr. Dans forecasted net income of $178 million and the press release of October 23, 2003
announced net income of $179 million. The Crown suggested that it was extraordinary that Mr.
Dans’ forecast could be so accurate.
[1116] In this regard, it is also a fact that Mr. Dans produced an Outlook, dated September 2,
2003, (seventeen days earlier) in which he projected net income for Q3 03 at $19 million.
[1117] It is more reasonable to me to conclude that Mr. Dans produced Outlooks which
forecasted varying levels of net income; one of which, in Q3 03, happened to be quite accurate.
[1118] Wilmer Cutler Pickering, on behalf of Nortel’s Audit Committee, in effect, investigated
the behavior of the three accused and their report resulted in all three accused being fired.
Wilmer Cutler Pickering concluded with respect to Q3 03 and Q4 03: “In light of concerns raised
by the inappropriate accounting judgments outlined above, the Audit Committee expanded its