Letters Rogatory (Evidence)

• Author: International Law Group
• Pages: 129-131

Page 129

The Trustees of the Ontario Service Employees Union Pension Trust Fund (OPT) brought a securities fraud class action against Nortel Networks Corp, a client of Deloitte & Touche, LLP, in a New York federal court. OPT alleged that, between October 2000 and February 2001, Nortel was making false or misleading public statements about its fi nancial condition.

According to OPT, Nortel used fi ve improper fi nancial reporting and accounting practices to make the false or misleading statements. These allegedly consisted of improper vendor fi nancing, improper inventory valuation, improper revenue recognition, failure to account for uncollectible receivables, and goodwill impairment. Later on, when Nortel did own up to its less than rosy financial situation, the value of its shares dropped, causing major losses to OPT.

One of Nortel's defenses was that it had depended on the guidance of its outside advisors in putting together its fi nancial statements. Deloitte had audited Nortel's year-end and quarterly fi nancial statements for 2000 and later years. In December 2003, Nortel issued revised statements for 2000 through 2003.

OPT wanted to examine the documents underlying the restatements and audits. Since Deloitte of the U.S. failed to reply to a subpoena for that purpose, OPT then obtained international Letters of Request from the U.S. district court in September 2004 directed at Deloitte of Canada.

Deloitte first objected to certain provisions of the Letters that required Messrs. Clark and Wayland, two Deloitte representatives, to be deposed. Mr. Clark was the lead audit partner with Deloitte and Mr. Wayland was the audit manager of the Nortel account. It also resisted the production of working papers dealing with Nortel's fi nancial statements and with whether or not certain transactions took place based on Nortel's 2003 restatements.

Deloitte also contested the production of all work papers inventories. According to the deposition of a Deloitte representative, the requested documents could well amount to more than a million pages demanding a minimum of 1500 person-hours to collect and examine them at different locations. Deloitte also claimed that most of the documents sought were not relevant either as to timeliness or as to subject matter. OPT offered to donate $ 100,000 to defray some of Deloitte's costs of production.

The application judge exercised her discretion to enforce the letters rogatory issued by the U.S. District Court...