updated 3/12/2007 12:45:30 PM ET 2007-03-12T16:45:30

The U.S. Securities and Exchange Commission on Monday filed civil fraud charges against a former CEO and three other former top executives of Canadian telecom equipment maker Nortel Networks Corp.

The suit filed in the U.S. District Court for the Southern District of New York claims the four repeatedly engaged in accounting fraud to bridge gaps between Nortel’s true performance and its internal targets and Wall Street expectations.

Named in the complaint are former CEO Frank A. Dunn along with Douglas C. Beatty, Michael J. Gollogly and MaryAnne E. Pahapill. The complaint alleges they engaged in misconduct while serving as top corporate executives of Nortel between September 2000 and January 2004.

During that time, Dunn served as chief financial officer and chief executive officer; Beatty as controller and chief financial officer; Gollogly as controller; and Pahapill as assistant controller and vice president of corporate reporting.

“The fraudulent conduct at issue here was egregious and long-running,” Linda Thomsen, director of the SEC’s Division of Enforcement, said in a news release.

“Each of the defendants betrayed Nortel’s investors and their misconduct gave rise to billions of dollars in shareholder losses,” Thomsen said. “The action we take today sends a strong message that officers of U.S.-filing foreign corporations will be held to the same standards of accountability that are required of all participants in the U.S. financial markets.”

Since 2005, the Internet and telecom equipment maker has been attempting to recover from an accounting crisis that affected results and caused shareholder lawsuits, regulatory investigations and the firing of key executives, including Dunn.

On March 1, Toronto-based Nortel added another chapter to its problematic accounting history by saying it will restate financial results for 2004 to 2006 to correct “certain errors” and delay a filing with the SEC until mid-March.

The changes add about $129 million in losses to 2004-5 reports, while improving 2006 earnings by $15 million.

Christopher Conte, an associate director of the SEC’s enforcement division, said the defendants disregarded accounting principles and disclosure requirements designed to provide investors with an accurate picture of a company’s performance.

“Investors were misled for extended periods of time about the health and stability of Nortel’s operations,” Conte said. “Further, these defendants all received significant compensation, in some cases in the millions of dollars, while they were manipulating Nortel’s financial results.”

Conte said that in some cases, the defendants received such compensation only because they manipulated Nortel’s financial results.”

According to the complaint, from late 2000 through January 2001, Dunn, Beatty and Pahapill altered Nortel’s revenue recognition policies to accelerate revenue as needed to meet forecasts. It claims that from July 2002 through June 2003, Dunn, Beatty and Gollogly improperly established and released reserves to meet earnings targets and fabricated profits and pay performance-related bonuses.

Nortel issued a statement saying it would have no comment and would continue to cooperate with the investigation.

Dunn’s lawyer called the filing disappointing. A lawyer for Beatty had no comment; one for Gollogly did not return calls. Pahapill was out of town and her office said she could not be reached.

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