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SEC Begins Formal Investigation of Nortel’s Accounting Practices

By Bernard Simon

The New York Times -- TORONTO

Nortel Networks, the Canadian maker of telecommunications equipment, said on Monday that the U.S. Securities and Exchange Commission had begun a formal investigation into its accounting, compounding recent uncertainty over the company.

Shares of Nortel fell sharply in trading in Toronto and New York. It was the most heavily traded stock on the New York Stock Exchange, where it closed down 3.7 percent, or 23 cents, to $6.06. Christina Warren, a Nortel spokeswoman, said that the company would not provide details of the SEC’s concerns “at this time,” but that it had been in contact with the commission since October and was “cooperating fully.”

When SEC commissioners upgrade an inquiry into a formal investigation, the commission then has the power to subpoena documents and request that witnesses testify under oath.

The questions over its accounting come at the same time that Nortel has seen renewed demand for its products.

Blaik Kirby, a senior vice president of Adventis, a telecommunications consulting firm in Boston, said that “in terms of their core business and delivering what their customers want, they seem to be doing very well.”

Nortel, he said, is reaping the benefits of not cutting back on research spending during the slump in the telecommunications market between 2000 and 2003.

Nortel, which is based in Brampton, Ontario, said in October that it would restate earnings and losses going back to 2000, after discovering mistakes in recording some restructuring costs and revenues. Last month, the company said it would need to revise its 2003 financial results again, as well as results for some earlier periods. The company then placed its chief financial officer, Douglas C. Beatty, and its controller, Michael J. Gollogly, on indefinite leaves of absence.