Nortel (NT) minced few words Wednesday as it put an end to the turbulent Frank Dunn era.

The Canadian telecom gearmaker shocked Wall Street by

firing CEO Dunn and two top finance officers, citing their lack of accountability. Dunn was immediately replaced by Nortel Director and former Teledesic Chief Bill Owens.

Industry observers say the rare "for cause" dismissal indicates the board wants a clean break with its troubled past. The move also betrays a strong conviction on the board's part that the three executives were at the center of Nortel's accounting scandal.

Now, looking back, analysts and industry watchers say there may have been more than coincidence at work in the questionable accounting that took place on Dunn's watch and the company's sudden banishing of red ink early last year. Interestingly enough, the company's splash into the black happened just as Nortel execs stood to collect on a $50 million

return-to-profit bonus.

"It says a lot when the new guy comes in and says we have a big problem and we are cleaning it up," says John Gavin, a financial sleuth with finance newsletter

SEC Insight

, referring to Dunn's elevation to chief of Nortel after the company expanded too fast during the boom. "Then they basically threw Dunn under the bus."

"You don't fire people for cause lightly," says a Wall Street analyst who asked not to be named. "You've either got a long record of incidents or you've caught them with their hand in the cookie jar."

It's hard to put Dunn anywhere but center stage in the bookkeeping bloodbath in Nortel's home base of Brampton, Ontario.

Dunn was named CFO in 1999 by former chief John Roth, and later succeeded Roth as CEO in 2002. Dunn helped Nortel open

"a new chapter" at the start of 2003 by claiming the company's restructuring was complete and it would return to the black by the middle of that year.

Just three months later, Nortel delivered

surprising profits based on a

controversial tally of earnings. Adding to the drama, some

$50 million in return-to-profit bonus money was riding on the results and the company's ability to stay in the black for the whole year.

Then in October, Nortel turned in

another stunner. Dunn inexplicably called for an audit of all accounting work dating back to 2000. The preliminary finding showed about $900 million worth of charges had been misbooked and that financial reports for that period would have to be restated.

Nortel said Wednesday that results for 2001, 2002 and 2003 will have to be restated again based on the preliminary findings of an independent review. The investigation suggests that the company's reported profit for the first half of 2003 will be wiped out, and that its overall profit for 2003 will be cut in half.

On a conference call Wednesday with analysts, new CEO Owen was asked if the company would take back the profit bonuses. Owen said that he wouldn't be able to answer that until after the review was finished.

But the enticing cash prize seems to offer an explanation for Nortel's unbelievably good fortune in early 2003.

"Nortel was making a profit when no one else in this business was," says Duncan Stewart, a money manager with Tera Capital who has a Nortel stake. "If this is as it appears, they may have given themselves a bonus in a fraudulent manner."

Nortel didn't make Dunn or a Dunn representative available for comment. Reached at home, Dunn's wife said he would have no comment.

If the bonuses perverted the profit motive, Nortel may share in the some of the responsibility, says executive pay expert Bruce Ellig, author of

The Complete Guide to Executive Compensation


Companies like



General Dynamics

(GD) - Get Report

ran into trouble by tying bonuses to specific targets like stock prices, says Ellig.

"If you've made the reward so appealing, it's almost inevitable that management will be tempted to use untoward means to obtain their goal, even if they are good people to begin with," says Ellig.

"When you put so much emphasis on incentive you may get the desired result, but it may not be valid," says Ellig.