U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 20546 / April 30, 2008

Accounting and Auditing Enforcement Release No. 2818 / April 30, 2008

SEC v. Frank A. Dunn et al., Civil Action No. 07-CV-2058 (S.D.N.Y.) (LAP)

THREE FORMER NORTEL VICE PRESIDENTS SETTLE FINANCIAL FRAUD CHARGES WITH THE SEC

On April 30, 2008, the Securities and Exchange Commission (“Commission”) announced that Craig A. Johnson, James B. Kinney and Kenneth R.W. Taylor — who were the vice presidents of finance for the Wireline, Wireless, and Enterprise business units of Nortel Networks Corporation (“Nortel”), respectively — agreed to settle the Commission’s charges against them arising from their alleged involvement in Nortel’s earnings management fraud during 2002 and 2003. Each has consented, without admitting or denying the Commission’s allegations against them, to the entry of a final judgment in the Commission’s litigation pending in the U.S. District Court for the Southern District of New York. The final judgments, which are subject to approval by the Honorable Loretta A. Preska, order each individual to pay a $75,000 civil penalty and to pay disgorgement in the amount of $66,845 (Johnson) and $52,000 (each for Kinney and Taylor), along with prejudgment interest in the amount of $21,186 (Johnson) and $16,481 (each for Kinney and Taylor). The final judgments also bar each individual from acting as an officer or director of any public company for five years and permanently enjoin each individual from violating the antifraud and falsification of books and records provisions of the federal securities laws — Section 17(a) of the Securities Act of 1933 (“Securities Act”), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”), and Exchange Act Rules 10b-5 and 13b2-1 — and from aiding and abetting violations of the reporting, books and records and internal controls provisions of the federal securities laws — Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1 and 13a-13.

As part of this settlement, and following the entry of the proposed final judgment against him, Kinney (who is a Certified Management Accountant in Canada) has also consented, without admitting or denying the Commission’s allegations against him, to the issuance of an administrative order pursuant to Rule 102(e) of the Commission’s Rules of Practice, suspending him from appearing or practicing before the Commission as an accountant, with the right to apply for reinstatement after five years.

The Commission’s complaint in the federal court action alleges that Johnson, Kinney and Taylor improperly maintained reserves during the fourth quarter of 2002, which they knew, or were reckless in not knowing, were no longer needed. The complaint also alleges that Johnson, Kinney and Taylor, acting upon the orders of former Nortel corporate executives — defendants Frank Dunn, Douglas Beatty and Michael Gollogly — manipulated Nortel’s earnings by (i) establishing approximately $37 million in unnecessary reserves during the fourth quarter of 2002 in order to suppress an unexpected profit and smooth Nortel’s consolidated financial results, and (ii) releasing approximately $213 million in excess reserves into income in order to generate fictitious profits for the first and second quarters of 2003, which in turn triggered the payment of so-called “return to profitability” bonuses to Nortel’s employees and officers.

The Commission’s litigation against five other former Nortel executives involved in Nortel’s accounting fraud is ongoing. See Litigation Release No. 20036 (March 12, 2007) / Accounting and Auditing Enforcement Release No. 2576 (March 12, 2007); and Litigation Release No. 20275 (September 12, 2007) / Accounting and Auditing Enforcement Release No. 2676 (September 12, 2007). The Commission also previously announced settled enforcement proceedings against Nortel and its principal operating subsidiary, Nortel Networks Limited, in connection with an accounting fraud which ran from 2000 through 2003. See Litigation Release No. 20333 (October 15, 2007) / Accounting and Auditing Enforcement Release No. 2740 (October 15, 2007).

http://www.sec.gov/litigation/litreleases/2008/lr20546.htm