Nortel Networks Corp. said Thursday it will slash its workforce by 3,500, or 10 percent, as it struggles to recover from an accounting scandal that toppled three top executives and led to a criminal investigation and lawsuits.

The company also fired seven financial managers, who join former chief executive Frank Dunn and two other executives "terminated for cause" in April when the company said it would have to restate its financial reports for past years.

Nortel stated that "each of these 10 individuals had primary, or substantial, responsibility for the company's financial reporting," and knew or should have known that statements of income violated generally accepted accounting principles and misstated the corporation's results.

The latest workforce reduction "is intended to preserve our customer-facing emphasis and in many cases to enhance it," chief executive Bill Owens told investors during a conference call.

Most of the job cuts will be in North America, largely from administrative and research and development functions, as Nortel aims to cut expenses by a further $450 million to $500 million a year.

Nortel said that implementing the strategic plan will cost $300 million to $400 million. It will be left with about 30,000 employees, down from 95,500 at its peak in 2000.

It also is restructuring from four business units to two, concentrating on equipment and services for telecommunications carriers and large enterprise systems.

"The cuts are not taken across the board but are taken in very focused ways," Owens said, noting that Nortel will be adding new salespeople and is "recruiting for a world-class chief marketing officer."

Nortel released "estimated limited preliminary unaudited financial results" on Thursday for the first half of this year, revealing six-month revenue of $5.1 billion, with $2.5 billion in the first quarter and $2.6 billion in the second quarter. Estimated net earnings for the half were break-even at 2 cents per share.

That compares with revenue of $4.7 billion in the first half of last year -- one of many numbers that remain in doubt as Nortel reviews its past financial reporting under scrutiny from Canadian and U.S. law enforcement agencies and securities commissions.

Thursday's update repeated that Nortel's stated profit of $732 million for 2003 would be cut in half.

Analysts have speculated that the firings in April and the planned restatement stem from accounting tricks Nortel played to make 2002 earnings look artificially worse than they were and 2003 earnings look better so executives could collect bonuses linked to the company's return to profitability.

The U.S. attorney's office in Dallas is probing the company, while the Securities and Exchange Commission and the Ontario Securities Commission have undertaken their own investigations.

Shareholders have filed several lawsuits against Nortel, and on Monday the company announced a Canadian police criminal investigation into its accounting.

Owens said the company would continue "to seek to recoup bonuses from the 10 executives terminated for cause." The bonuses are worth about $10 million, he added.

Nortel's U.S.-traded shares rose 14 cents, nearly 4 percent, to close at $3.74 Thursday on the New York Stock Exchange.