Another Scumbag CEO
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| Tue, 08-24-2004 - 2:54pm |
Aug. 24, 2004. 07:09 AM
Fired Nortel CEO builds mansion
Took out mortgage worth $3 million on lakefront lot
Bought land soon after taking company's helm
TYLER HAMILTON
TECHNOLOGY REPORTER
Frank Dunn, recently fired chief executive of scandal—plagued Nortel Networks Corp., is in the midst of building a multimillion-dollar lakeside dream home in the heart of Oakville, the Star has learned.
According to land registry documents, the tree-lined waterfront property was bought for $4.3 million cash in August, 2002. The purchase came 10 months after Dunn, former chief financial officer of Nortel, replaced John Roth as CEO of the struggling telecom-equipment giant.
Oakville-based architecture firm Hicks-Pettes Architects Inc. and Coulson Fine Homes of Mississauga are designing and constructing Dunn's new abode, which sources say will likely have a market value between $12 million and $15 million when finished.
"I can't comment, we have to keep our client confidentiality," said Janet Coulson of Coulson Fine Homes when contacted by the Star. "It's a beautiful property," said William Hicks of Hicks-Pettes, who also declined further comment.
Dunn, who already resides in Oakville, did not return calls, nor did his attorney Thomas Heintzman of Toronto-based McCarthy Tetrault LLP.
Brampton-based Nortel announced last week it is cutting another 3,500 employees, bringing to 30,000 a workforce that swelled above 95,000 four years ago. The company, which under Dunn pledged in 2002 to become profitable again, is under criminal investigation by the Royal Canadian Mounted Police and federal authorities in Texas for accounting irregularities stretching back to 2001.
Dunn and two high-ranking financial officials were fired "for cause" in April, followed last week by the termination of another seven executives.
Nortel has said it is also conducting an internal review of its accounting practices, which analysts suspect is focused on bonuses paid to certain senior executives in 2003.
Williams Owens, Nortel's current CEO, said last Thursday the company will demand repayment of 2003 bonuses worth about $10 million (U.S.) that were paid to the 10 dismissed executives, including Dunn. It's estimated that Dunn's 2003 bonuses exceeded $4.5 million.
"It's surprising that Mr. Dunn is apparently undertaking such a large discretionary project at this time," said Charles Smedmor, a forensic accountant with experience in real estate at Toronto-based Smedmor & Associates.
"A concern is whether putting these funds into such a real-estate project may reduce the potential recoveries for Nortel and its shareholders."
The Star visited the property, partly fenced in along a wealthy stretch of Lakeshore Rd. East, and was met with a polite yet determined construction worker, who escorted us off site.
Photographs from the air show a grandiose, partially complete mansion with a built-in custom swimming pool. A boathouse is located at the edge of the water, where a break wall leads to a large boat slip.
Dunn appears to have paid cash for the property, but land registry documents show the ex-CEO took out a mortgage May 10 — 12 days after being fired from Nortel — for $3 million. The mortgage was through Royal Bank of Canada at prime rate less 0.5 per cent. His monthly payments, which began in June, are about $15,000.
Ramy Elitzur, an associate professor of accounting at the Joseph L. Rotman School of Management, said taking a mortgage out on the property makes sense given Dunn's current situation.
"I don't see him being employed by anybody in the industry for some time," said Elitzur. "He probably did it because he wanted to have cash on hand."
In addition to paying for construction of his new home, Dunn faces the prospect of having to pay back his 2003 bonus, or pay huge legal fees trying to keep it. He also faces legal fees related to a number of class-action lawsuits, which allege Dunn and other executives knowing and recklessly misrepresented Nortel's financial situation in 2003 and parts of 2004.
None of these claims have been proven in court.
"He's now in a whole new ballgame in terms of what's going to happen," said Elitzur. "Just to be on the safe side he took the mortgage, I suspect."
Additional articles by Tyler Hamilton

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Don't take this as gospel. I could be wrrrrong.......
"James Steffes who signed the SBV letter"
It appears he lives in Sun City, Calif.
"James Steffes who was prominent at Enron"
Wouldn't he live in Tx.?
"Corporations need regulation"
Remember that's what Dr. Howard Dean suggested? H2o under the bridge.
I really didn't follow Dean, but we need to strengthen the dam. How many more corporations are going to defraud the Americans before we wake us wake up and realize this is just the trickle before the flood.
I think the laws need to be changed with regards to the board members being able to protect their personal assets. If they are guilty of fraud, then the protections supplied by being incorportated should be nullified.
"protect their personal assets"
I don't know too much about this only what I've experienced. I was a board member of a company that went into Chapter 11, after the fact. The CFO & CEO didn't pay the employee taxes. The board members were held responsible. I paid a portion of the monies owned out of my pocket. This was in the 80's.... in the 90's when I was selling my house I learnt the IRS had put a hold on my property. They had never notified me & I paid my portion post haste. (I don't screw with the IRS. ;)) It was sorted out but I was royally PO.
I do know that Lay's assets were protected and his house, cars, furniture, etc cannot be touched.
His assets are in annuities for him & the Mrs.
I suspect Tx. has different laws to Calif.
Believe it's Florida where they can't take your house if you file bankruptcy.
Actually, if a CEO is found guilty of fraud the corporate vail doesn't protect his assets. What has happened in most cases is that the investment laws protect certain investments, or they put funds in another name. We need a law similar to RICO that allows confication of assets in case of fraud. Just like the fed has the ability to confiscate assets in drug cases. Can you imagine the lobbying that would go on if this law was ever suggested?
Big crime pays big dividends. Let's have more corporate crime!!
Can you imagine the lobbying that would go on if this law was ever suggested?
OMG...it would be like an apocalyptic infestation of gnats
...or maybe cockroaches...
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