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Frank Dunn

Ex-Nortel CEO: What? Me? Pay my own legal fees? Don't you know who I am?

Posted By Martyn Warwick , 26 June 2009 | 0 Comments | (5)
Tags: Industry manufacturers Fraud legal

Dig deep please in an attempt to unearth a scintilla of sympathy for Frank Dunn, disgraced sometime CEO of the late-lamented Nortel Networks, who was fired "for cause" back in 2004 when it came to light that there had been prestidigitation practiced on the company's books, writes Martyn Warwick.

Now, after making himself all but invisible for five years, Mr. Dunn is back - and squealing. He claims that he is "living a nightmare" because the criminal investigation is taking such a long time and he finds himself facing the possibility of having personally to pay his legal bills. Well,  "Quelle domage", as they say in Quebec.

As Dunn, and Nortel's former CFO Doug Beatty, wait for the outcome of a series of interlinked investigations that could see them in the dock defending themselves against criminal charges of security fraud, the two are also locked into expensive litigation with Nortel's insurer Chubb Insurance.

Chubb rescinded the liability coverage provided to Dunn and Beatty back in 2003 on the grounds that there had been "misrepresentations" in regard to a series of class-action lawsuits that Nortel shareholders brought when they became aware that the company's hugely optimistic growth forecasts were no more than wishful thinking and bore no relation to the reality of the situation.

Chubb says it will pay no more than 50 per cent of the Dunn and Beatty's legal fees as the Ontario Securities Commission in Canada and the Securities and Exchange Commission in the US pursue their investigations. Meanwhile two other probes, by the Royal Canadian Mounted Police and US criminal investigation agencies, continue on their stately way.

On Monday, even as the Toronto Stock Exchange stopped trading in Nortel shares, Dunn and Beatty were in the Ontario Court of Appeal attempting to overturn a decision made earlier this year by a Superior Court judge that they should not be reimbursed between 90 and 100 per cent by Chubb Insurance as they were demanding. The upshot is that two fat cats stand to have to pay millions of dollars in legal fees. Perhaps they can take it out of the huge bonuses they arranged for themselves?

Dunn, who, at the time of his dismissal was building an opulent multi-million dollar lakefront mansion for himself and his car collection, is claiming that his director's liability coverage was rescinded without cause and that as a result he is now "up against the wall." We don't know what wall that is, but it can't be one in his half-built palace - that was seized a while ago.

Dunn's lawyer, Tom Heinzmann says his client is "living a nightmare that every executive officer dreads.

For five years, he has been facing this litigation and defending himself from allegations he says are false. And he is presumed innocent."

Yes, and innocent too are all the Nortel shareholders who have watched aghast as the value of their investment was destroyed. Also blameless are the thousands of ordinary Nortel staffers who have seen their jobs disappear as the company's pathetic management fiddled as Toronto burned and their personal bank accounts swelled.

Lawyer Heinzmann contends that "nobody can defend themselves against the SEC without the insurance that was in place for his protection" and that Dunn "should not have to bear that burden." Oh really? Why not? Lots of other, very much poorer people are having to bear onerous financial burdens because of him.

Twelve months ago the Mounties charged Dunn and Beatty with falsification of documents and fraud affecting the public market. Dunn is out on $250,000 bail; Beatty on $100,000.

Beatty's attorney, the imaginatively named Bonnie Tough (I haven't seen a photo of her yet so can't judge if the face fits either name) says it is "as clear as a bell" that the insurance policy that, among others, covered her client and Dunn between 1999 and 2001 should cover their ongoing legal expenses (that now run into the millions of dollars) despite Chubb's cancellation of the policy in 2003.

And get this for an argument. Ms. Tough claims there is a provision in the insurance policy that provides for financial recompense for "wrongful acts" that are not covered during one policy period to be allocated to a previous policy. Tough says the provision will apply in the cases of Dunn and Beatty if the allegations against them relate to one continuous fraud.

However, this would seem to be a non-starter given that the SEC and other agencies are alleging Dunn and Beatty were involved in two completely separate frauds. The first is a "revenue recognition" scam relating to billing transactions and took place in 2000. The second is an "earnings management" con that took place during 2002 and 2003. Law enforcement agencies allege that the two executives devised and managed a scam that triggered big bonuses for the pair by the issuance of unrealistic and fictional projections of Nortel's earnings.

So, did you manage to dredge up a scintilla of sympathy for Dunn from amidst all the ordure? No neither did I. Not even the tiniest glimmer of iron pyrites at the bottom of the pan. C'est la vie.

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