Even Canada’s corporate crime cops are suddenly busy busting businessmen
It was a day for the record books. Never have so many high profile former insiders in so many companies been charged with fraud on both sides of the border. The RCMP, a frequent object of criticism for its slow pace in bringing white-collar criminals to justice, suddenly broke into a sprint and charged a whole slew of former executives in Nortel and Royal Group Technologies, including past CEOs of both firms. In the United States, justice department officials brought indictments against two former hedge fund managers at defunct Bear Stearns.
As an aside, you may have noticed the former Bear Stearns managers being taken away in handcuffs, escorted by armed federal agents. You will not see that picture in Canada. It’s just not considered the Canadian way -at least not when it comes to dealing with corporate fraud at this level. Some observers believe the contrast says a lot about the differences in how seriously the two jurisdictions treat white-collar crime.
Now that one-time executives at Nortel and Royal Group Technologies have been charged, the question is when will they be tried? Canada has a notoriously slow record in getting high profile white-collar cases into the courtroom. Garth Drabinsky and Myron Gottlieb, founders of the once highflying Livent, where charged with accounting fraud in 2002. Their trial got underway in Toronto just last month. We have been attending some of the proceedings and will be following up with a posting shortly. The charges involving Nortel’s former executives arise from events in 2002 and 2003, nearly six years ago. The fraud at Royal Technologies is alleged to have taken place some 10 years ago. By contrast, the U.S. justice system typically works much faster, as Conrad Black discovered to his dismay. The Bear Stearns fraud is said to have taken place in early 2007. The legal future of the pair charged there will likely long have been decided before even the first word is spoken in the Canadian corporate trials of the former stars of Nortel and Royal Technologies.
One more fact in common among these three companies is worth noting. They were a model of corporate governance failure. We broke news on Bear Stearns’s stunning board shortcomings even before its unceremonious end. Royal Technologies’ governance, and it’s being generous to call it that, was so bad it is hard to imagine that the lights were ever turned on in the boardroom. Did the CEO hide the switch from the directors? We shall see. Nortel, like Enron, was one of the boards that looked good on paper but in reality was giving management a blank check. It’s not surprising that some of the company’s former management may actually have taken that role a bit too seriously. To have had to restate its financial figures as often as Nortel has (four times in all and a record for a publicly traded company in such a period of time), and to admit the extent to which its internal financial controls had failed, are a testimony to how far and how long its big-name board slumbered.
Don’t be surprised if the issue of corporate governance, and what directors did and did not do, features prominently in some of these trials.