Hi, I am Melanie Johannink, a recently severed Nortel employee and chair of the Nortel Bankruptcy Justice Committee, and as such, I have thoroughly read through the bill and would like to raise a concern.
Alleged fraud at the top of a public corporation also poisons the well. Observing the impact of alleged accounting fraud at Nortel between 2002 and 2004 has given me knowledge to understand how Nortel, in bankruptcy protection today, could have turned out with a different ending.
If Canada did a better job deterring financial fraud, Nortel could still be an ongoing concern in its tradition since 1895. If Canada had effective securities crime policing such as Gary Logan proposes to achieve with a new securities crime unit, then the alleged Nortel fraud would have been prosecuted by now. Instead, Nortel has had four different CEOs in eight years, with over 17 rounds of layoffs.
In 2000, the first OSC allegation of insider trading against senior officials occurred. In April 2004, with accounting and insider trading allegations, Frank Dunn was terminated with just cause. The RCMP launched a probe into Nortel's finances, and in June 2008, four years later, Dunn was arrested by the RCMP, as were two other former Nortel executives, charged with fraud affecting the public, falsification of books and documents, and producing a false prospectus.
The two subsequent CEOs after his departure were preoccupied with working through restatements, supplying documents for the various investigations, negotiating the class action settlement, and dealing with the reputation of the corporation at the same time.
In the technology industry, evolution of new technology and services is a constantly changing landscape. The competition is fierce. In my opinion, Nortel has had reputational damage affecting not only the shareholders and creditors, but also its customers. When the financial crisis hit, Nortel, to me, was ill prepared to weather the storm through the years of turmoil.
The Nortel situation demonstrates that alleged corporate fraud in public companies not only damages their shareholders and creditors but has wide-reaching effect on employees.
In 2009, seven years after the accounting restatement issues arose, we now have over 20,000 Canadian Nortel pensioners, long-term disabled, and severed employees facing significant income cuts, and through bankruptcy, the wallet is opened on the taxpayers' purse to pay for increased use of social security programs. Meanwhile, Nortel's executives continue to receive executive salary bonuses for reducing costs by putting retirees and former employees onto the public purse.
Bill C-52's effort to encourage more restitution settlements for the victims of fraud is an excellent idea, but when the prosecution of executives takes place up to 10 years after a corporation has gone bankrupt, what good is it to terminated employees who lost their jobs without severance when the company went bankrupt 10 years earlier?
In November 2008, the Deloitte Forensic Center and the Deloitte reorganization services group analyzed bankruptcy filings in the U.S. between 2000 and 2005 and SEC enforcement releases issued during the period. Their study concluded that companies issued accounting and auditing enforcement releases were three times more likely to file for bankruptcy than those not issued one, and 35% of the companies issued SEC accounting enforcement actions during the period filed for bankruptcy.
Terminated employees, pensioners, and long-term disabled persons need to be protected at the time of bankruptcy. An amendment to the Bankruptcy and Insolvency Act would be a way to ensure compensation to the pensioners, but upon bankruptcy filing, there is no opportunity for employee groups to file for civil lawsuits to remedy the damages caused to them by alleged fraudulent conduct due to the bankruptcy court stay. How can justice be served 10 years after the fact?
Other countries are not as lax as Canada. These types of offences should be taken very seriously and efficiently. If Bill C-52 includes public corporations, executives would work in an effective and transparent way to save themselves a fall from grace.
I have taken a day out of my employment insurance, what little moneys I am currently making, for you to hear my plea. I have full faith that Bill C-52 will be amended to include stiffer sentences for white collar crime committed at public companies.