Nortel Networks Corp. served up two pieces of bad news this week, announcing late Monday that the companys chief financial officer, Terry Hungle, had resigned over alleged illicit personal financial transactions, and said Tuesday that quarterly sales of telecom equipment were not going well.
According to Nortel officials, Hungle allegedly made adjustments to his personal 401(k) plan just prior to company news releases. These financial transactions reportedly involved selling off and buying back shares of a stock fund invested primarily in Nortel, and were in violation of company rules placed on trades by insiders.
The alleged sell off, in March 2001, when Hungle was still the companys vice president for finance and business development in the Americas, came shortly before Nortel announced it would miss earnings estimates and begin a new round of layoffs. Hungle allegedly transferred $78,500 from the stock fund to a fixed income fund.
In December 2001, when Nortel was set to announce a narrower-than-expected loss, Hungle allegedly transferred $86,300 from the fixed income fund back to the stock fund.
Nortel said it has voluntarily notified both the American Securities and Exchange Commission and Ontario securities officials about the matter. A company official declined further comment because of pending regulatory investigations.
Nortels president and chief executive officer Frank Dunn has assumed the role of interim chief financial officer. Dunn stressed in a prepared statement that Hungles activities in no way touched upon the financial operations of the company. Hungle took over as CFO in November 2001.
On Tuesday morning, before a planned investor conference in New York City, Nortel announced that sales continue to be down about 10 percent from the previous quarter, in line with company guidance. But, Dunn saw fit to emphasize in a prepared statement before the conference that "activity over the last 25 days has indicated even more resolve by customers than originally anticipated to minimize spending in the near term and this will make the task of delivering our first quarter sales outlook more challenging."
Dunn said he still believes the company is on track to see improved revenues in the second quarter, and a return to profitability in the fourth quarter.
Nortel stock was down about 6.8 percent in late trading Tuesday.