SEC sues former top Qwest executives

DENVER - The US Securities and Exchange Commission on Tuesday sued former Qwest Communications International chief executive Joseph Nacchio and 10 other former executives, accusing them of perpetrating a massive financial fraud on investors.

The SEC simultaneously settled with four of the former executives named in the lawsuits, which were filed in Denver federal court and accused the Qwest management team of filing false financial statements that hid the true source of the company's revenues between April 1999 and March 2002.

The Denver-based phone company allegedly fraudulently reported about US$3 billion ($4 billion) of revenue while excluding US$231 million in expenses, and also facilitated the company's June 2000 merger with US West, the lawsuits said.

Named with Nacchio in the still-pending lawsuit were former chief financial officers Robert Woodruff and Robin Szilega; former chief operating officer Afshin Mohebbi; former finance executives James Kozlowski and Frank Noyes; and Gregory Casey, former executive vice-president of Qwest's wholesale business.

Nacchio's attorney, Charles Stillman, said his client "did nothing wrong and did not instruct anyone else to do anything wrong during his tenure at Qwest, and he looks forward to being vindicated".

In a statement, Stillman said Nacchio co-operated extensively with the SEC throughout the investigation and believes the agency "unfairly seeks to impute to [him] and others at Qwest responsibility for the results of a widespread industry downturn in a deteriorating economy".

Woodruff's attorney had no comment on the case. Lawyers for Szilega, Mohebbi, Kozlowski and Noyes could not be reached for comment.

Qwest spokesman Bob Toevs distanced the company from the latest act in the unfolding legal drama. "Any allegations that concern conduct at Qwest relate to events that took place many years ago," he said. "The company is focused on its future."

The lawsuit focused on Nacchio and the company's two former CFOs accuses the former executives of directing and implementing the scheme, which it said involved filing false financial statements and deceiving auditors.

The SEC alleges the "massive fraud" sprung directly from aggressive and rigid targets for earnings and revenue set by Nacchio and the two CFOs, "which they constantly touted to the investing public and Wall Street".

Nacchio created a "culture of fear" by placing "extreme pressure" on subordinate Qwest executives, insisting they meet the financial targets at all costs, the suit said.

Qwest met the targets by repeatedly booking revenue from one-time sales of equipment and assets while falsely claiming the revenue was recurring, the lawsuits said.

Qwest eventually had to restate more than US$2 billion in revenue for 2000 and 2001.

The four settled lawsuits released on Tuesday were against former senior vice-presidents William Eveleth and Roger Hoaglund and ex-controllers Mark Schumacher and Brian Treadway. Treadway was acquitted last April of criminal charges related to his work at Qwest.

Hoaglund's lawyer said his client admitted to no wrongdoing but agreed to settle "because he wanted to get on with his life". Eveleth's lawyer had no comment.

Lawyers for Treadway and Schumacher could not be reached.

Qwest agreed in October to pay more than US$250 million to settle financial fraud charges. It also agreed to have a permanent chief compliance officer to ensure the company obeyed securities laws.

In February, federal prosecutors charged Marc Weisberg, a former executive vice-president of Qwest, with wire fraud and money laundering for allegedly using his position at Qwest to enrich himself personally.

 

- REUTERS