Qwest Reaches Agreement with SEC, Union Official Says

Qwest Communications International Inc. has tentatively agreed to pay $250 million to settle federal regulators' fraud allegations, a union official said Friday -- a move that could help lift a cloud that has hung over the telecommunications giant for nearly 2 1/2 years. Such a settlement would help Qwest put to rest a tumultuous period during which it has been under investigation for everything from how it booked revenue to deals that it made with other telecom companies.

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Qwest Communications International Inc. has tentatively agreed to pay $250 million to settle fraud allegations by federal regulators, a union official said Friday — a move that could help lift a cloud that has been hanging over the telecommunications giant for nearly 2 1/2 years. John Thompson, a Communications Workers of America vice president, said he was notified by a company official of the tentative settlement with the Securities and Exchange Commission. He said he did not have specifics. “I would rather have the money for use internally, but I’m very much relieved it’s over,” said Thompson, based in District 7 in Qwest’s region. Qwest spokesman Bob Toevs declined comment, saying only that the company was cooperating with the SEC and the Justice Department. A spokesman for the U.S. Attorney’s Office in Denver, Jeff Dorschner, said he had not heard of a settlement with Qwest. “If there were to be a settlement, it would no way impact the Justice Department investigation,” he said. Such a settlement would help Qwest put to rest a tumultuous period during which it has been under investigation for everything from how it booked revenue to deals that it made with other telecommunications companies. The Denver-based company restated financial results for 2001 and 2002 to lower revenue by about $2.5 billion, and former chief executive Joe Nacchio stepped down in June 2002. Nacchio, who has not been charged with wrongdoing, has denied any misconduct. Analysts say an SEC settlement could help clear the way for the sale of the company. They believe Qwest’s relatively small size and lack of a wireless division might make it an attractive acquisition because of its regional customer base. Qwest operates in 14 Western and Midwestern states. A key to any settlement would be the scope, whether it was broad enough to cover all the pending allegations and issues, said telecommunications consultant Tom Friedberg, who monitors Qwest. “If this is a narrow settlement that gives all the plaintiff trial lawyers a broad cause of action, they’re going to be picking over the company like vultures,” Friedberg said. Qwest was launched in 1988 by billionaire investor Philip Anschutz as a fiber-optic network company. In 2000, it got into the local phone business with the $38 billion takeover of US West, the main carrier in 14 Western and Midwestern states since the 1984 breakup of AT&T. As the telecom industry faltered, analysts questioned Qwest’s financial performance. Soon regulators and lawmakers were investigating whether Qwest artificially boosted its performance through questionable deals with other telecoms. The SEC began investigating Qwest in March 2002, looking specifically at swaps in which Qwest sold items to customers around the same time those customers sold items back to Qwest; changes in publication dates for its phone directories that allowed revenue from the directory unit to be booked in a certain quarter; and when revenue was booked on long-term transactions involving optical capacity assets. To date, about a dozen former Qwest executives either have settled allegations or have been targeted in civil or criminal cases. In April, a federal jury acquitted two midlevel managers of improperly booking nearly $34 million in revenue in a deal with Arizona schools. It deadlocked on charges against a third defendant and most counts against a fourth. Prosecutors plan to retry Thomas Hall on four counts while the other manager pleaded guilty to a felony count of accessory after the fact to wire fraud with reckless indifference. In June, a Denver district judge approved a $25 million deal settling five shareholder lawsuits accusing Qwest and former executives of insider trading. A class-action shareholder lawsuit still is pending in U.S. District Court. Qwest’s stock closed up 15 cents, or 5.2 percent, to $3.03 a share on the New York Stock Exchange. Copyright 2004 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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