Nortel sacks three top executives

Nortel Networks, North America's largest telecommunications equipment maker, fired its chief executive, chief financial officer and its controller on Wednesday, and said it would cut in half last year's earnings in a worsening accounting debacle that goes back to at least 2001.

In January, Nortel said it earned US$732 million last year, its first full-year profit in six years. The scaling back of those profits now raises serious doubts about Nortel's attempts to improve its accounting methods, as well as its efforts to reposition itself after the technology slump. The company said Wednesday it had a net loss in the first half of last year.

Nortel, whose audit committee has been investigating the com-pany's accounting of restructuring costs and revenues, said some of the profits it recorded last year would be shifted to prior years when the company lost money, reducing losses in those years. The company also said it would delay the release of its first quarter earnings, which were due out yesterday.

The company, based in Brampton, Ontario, said its chief executive, Frank Dunn, who was chief financial officer before becoming chief executive in 2001, was "terminated with cause."

The company also announced that William Owens, a company director since 2002 and a retired admiral and former vice chairman of the US Joint Chiefs of Staff, will replace Dunn as chief executive.

On Wall Street yesterday, Nortel plunged US$1.59, or 28 percent, to close at US$4.05 in trading of more than 300 million shares

The stock prices of rivals including Lucent, Cisco and Juniper Networks also fell.

Earlier this month, the Securities and Exchange Commission launched a formal investigation into accounting practices at the company. The Ontario Securities Commission is also inspecting the company, and Nortel has been contacted by the Royal Canadian Mounted Police.

Last October, the company restated more than three years of earnings because it assumed costs in certain years that should properly have been spread over future years.

Companies have been known to lump bad news into money-losing years as a way to improve earnings in subsequent years.

Last month, Nortel put the former chief financial officer, Douglas Beatty, and Michael Gollogly, the former controller, on paid leave.

Lynton Wilson, Nortel's chairman, told analysts on Wednesday that the decision to fire Dunn "is about accountability for financial reporting. That is the concern. That is the issue."

Under Canadian law, an employer can fire a person "for cause" if a blameworthy act can be shown, including incompetence. The phrase does not necessarily mean a criminal act has been committed.