Nortel’s CFO Quits Over Trades in His 401(k) Plan
Nortel Networks’ chief financial officer abruptly resigned on Monday, citing mistakes he made in trading Nortel stock within his 401(k) retirement plan.
The Canadian telecommunications company said it had voluntarily submitted data to securities regulators in both the U.S. and Canada regarding trades made by Terry Hungle, who was named Nortel’s chief financial officer last October.
Hungle, while serving as vice president of finance for a Nortel subsidiary, transferred about $78,500 from a stock mutual fund that was primarily invested in Nortel stock to a fixed-income fund on March 27, 2001, Hungle said in a statement released Monday. After the market closed that day, the company announced that it would not meet analysts’ earnings expectations, which caused the company’s stock price to plunge 19% the next day.
In December, Hungle transferred about $86,300 back into the stock fund, effectively reversing his previous trade, he said. Two days later, Nortel announced that the company’s losses would not be as bad as expected, which caused the stock price to rise.
The trades violated Nortel’s internal guidelines prohibiting executives from buying or selling shares within a set period of time around major company announcements, the company said. Many companies have similar “trading windows,” which bar executives from making any transactions involving company stock immediately before or after major company announcements.
These trading windows are not required by law, Securities and Exchange Commission officials said Monday. However, they aim to protect the company and company executives from allegations of insider trading.
“I now recognize that I made a serious mistake in judgment by executing the March 27 and Dec. 18 transactions outside the ‘window period’ in which the company’s senior employees were permitted to trade in Nortel stock,” Hungle said.
“Because of those mistakes in judgment, I am resigning from my position as chief financial officer.”
Hungle’s resignation follows a tough period for Nortel, whose stock has fallen 76% in the last 12 months. It also comes as investors and regulators are paying close attention to any hint of corporate impropriety, especially in relation to employee pension plans.
Nortel, based in suburban Toronto, said Monday that pending the appointment of a new chief financial officer, Frank Dunn, president and chief executive, would take on the additional role. Dunn served as Nortel’s chief financial officer until Oct. 31, 2001, when he was named CEO.
“This matter is unfortunate, but the actions we have taken are in the best interests of Nortel Networks,” Dunn said in a prepared statement. “Let me emphasize that this matter solely relates to the personal investment transactions made by Terry Hungle and does not relate to the business, operations or financials of Nortel Networks.”
Nortel refused to comment further. Nortel’s stock closed up 55 cents to $6.84 Monday on the New York Stock Exchange.
The news of Hungle’s resignation was released after the market closed. Nortel said a meeting with analysts scheduled for today in New York would be held as planned.
