Nortel Settles Class Action For $2.5B

Accounting scandals can be very costly. That would seem to be an obvious
lesson in recent years, a settlement reached today by Nortel Networks helps
to further underscore that point.

Today, Nortel announced a deal to settle a class-action lawsuit relating
to its 2004 accounting scandal. The cost? A cool $2.5 billion.

According to the terms of the settlement, Nortel will
shell out $575 million in cash and issue common share accounting for 14.5
percent of the company’s current equity, some 628,667,750 of its common

The deal also allows Nortel to contribute up to one-half the
amount of any recovery resulting from the related ongoing litigation against
Nortel’s former executive teams that lost their jobs over the accounting scandal in 2004.

In a statement, Mike Zafirovski, Nortel’s president and CEO, said that the resolution of the accounting issues will help Nortel focus on its business transformation and its customers.

“Today’s agreement in principle is an important milestone for Nortel,” said
Zafirovski. “We continue to work vigorously on the implementation of
our remediation plan and addressing our outstanding regulatory matters.

“We remain fully committed to rebuilding value for the benefit of all

Nortel has been in a tailspin since the accounting scandal first broke in
2004, first losing its then CEO Frank Dunn in 2004, and dogging his immediate successor Bill Owens over the length of his short tenure.

Nortel’s own
shareholders lashed out at the company’s 2005 annual meeting over the accounting meeting that leveled
harsh criticism against the Canadian Telecom giant’s executive team.

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