RCMP initiates Nortel investigation

The Royal Canadian Mounted Police (RCMP) have launched a criminal investigation into the financial accounting practices of network gear maker Nortel Networks Corp. just days before the company is set to release some of its restated financial results.

The Brampton, Ont.-based company announced late Monday night that it had been notified by the RCMP that a criminal investigation would proceed, after an ongoing review by the RCMP. Nortel said in a statement that it would continue to cooperate fully with the RCMP in connection with the investigation.

Nortel’s accounting problems first came to light late last year when the company announced that it would be restating financial results for 2000, 2001, 2002 and the first two quarters of 2003 as part of an ongoing review of its assets and liabilities, following revelations that its past accounting had been manipulated.

In April, Nortel fired CEO Frank Dunn and its CFO and controller, and delayed its results for the first quarter of 2004. The company currently provides biweekly performance updates mandated by the Ontario Securities Commission, auditing Nortel’s results going back to 2000. Both Canadian and U.S. securities regulators have launched investigations into the company’s accounting practices.

One industry analyst said he isn’t surprised by the RCMP investigation.

“Obviously there were accounting irregularities announced previously…any time that this happens obviously there are going to be some reviews by different groups. It’s still bad, don’t get me wrong, but it’s not any different than it was before,” said Kevin Lo, equity analyst with Lightyear Capital Inc. in Calgary.

“One thing that will probably happen with Nortel and most of the other companies in the U.S. and Canada is the regulatory environment will be a lot more stringent and a company will have to spend more money in terms of making sure their books are well accounted for,” Lo explained.

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