Nortel Holders Sue Directors

Another shareholder suit is adding to Nortel's (NT) headaches.

The Brampton, Ont., telecom-equipment maker said Tuesday that a group of shareholders is seeking damages from certain current and former directors and executives. The suit claims breach of fiduciary duty and potentially unlawful conduct between 2000 and 2003. The lawsuit was filed on July 30 in the U.S. District Court for the Southern District of New York.

The plaintiffs in the lawsuit include two labor union retirement funds. The defendants are 28 current and former Nortel directors and executives including former CEOs John Roth and Frank Dunn, as well as current legal chief Nick De Roma and President Chahram Bolouri, according to the lawsuit. Among other things, the suit accuses the directors and executives of inflating sales through an aggressive acquistion strategy in 2000, extending financing to credit risk customers, and manipulating the books so executives and employees could collect hundreds of millions of dollars in cash bonuses.

Roth didn't immediately return a call seeking comment. A person at Dunn's home said he declined to comment. On behalf of De Roma and Bolouri, Nortel didn't comment, noting its action in appointing a panel to investigate the claims.

The suit is just the latest setback for Nortel as it seeks to fix its tattered books. The company hasn't filed numbers with regulators since this spring, when it fired a raft of financial executives in the wake of news that its profits had been overstated in previous periods. The company named a new CEO, started an internal audit and said it would need to restate its numbers going back several years.

The company also said it plans to release preliminary financial results for the first two quarters of 2004 on Aug. 19 and to update investors on the impact of its ongoing audit.

The latest shareholder lawsuit against the former and current officers was preceded by a July 12 letter from the plaintiffs' group telling Nortel it should seek damages from several former officers within 14 days. The company, saying it couldn't realistically comply with the request in that span, is appointing a committee to look into the charges. The shareholder group filed the lawsuit on July 30.

Nortel has plenty of legal troubles of its own. A U.S. District Court consolidated 27 shareholder lawsuits against the company into one in June.

Earlier this year, after internal audits revealed that executive bonuses were based on false profits, the company became the center of investigations by the Securities and Exchange Commission and the Ontario Securities Commission.

In addition to the tech shop's accounting scandal, business itself hasn't been exactly booming. Nortel said last month that its costs were too high and hinted that cuts were in order. But executives have not detailed any plans yet.

The company has scheduled a conference call on Aug. 19 to discuss its plans and financial update.

The company says it is preparing an update of restatement findings for each 2003 quarter and for earlier periods, including 2002 and 2001. The company is expected to release those findings and preliminary financial reports for the first and second quarter of this year in the middle of next month.

The company has been hit hard this year by findings that earnings were overstated going back several years. In April, Nortel fired CEO Dunn and several other top execs for cause amid an expanding accounting probe.

On Tuesday, Nortel rose 4 cents to $3.55.

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