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Qwest Communications International Inc., the regional telecommunications company, agreed Thursday to pay $250 million to settle allegations that it engaged in “massive financial fraud” by improperly booking $3.8 billion in revenue and misleading investors about it. In a scathing 56-page complaint, the Securities and Exchange Commission accused Qwest senior managers of approving and directing a scheme to book one-time revenue from the sale or trade of fiber-optic capacity as recurring revenue from operations. Qwest became so dependent on the tactic that employees began comparing the company to a drug addict and the transactions as the company’s “heroin,” the complaint said. Qwest agreed to the settlement without admitting or denying the allegations. “We are pleased to conclude this matter, which will now allow us to focus even more of our effort to provide exceptional value and service to customers,” CEO Richard C. Notebaert said in a statement. Donna Jaegers, a research analyst with Janco Partners in Denver, said the settlement means a welcome end to the 2 1/2-year investigation. “This would be a great thing for Qwest to get this behind it. They need to be paying attention to their business,” she said. A criminal investigation of the company is still under way, said Jeff Dorchner, a spokesman for the U.S. attorney in Denver. Dorchner said the investigation includes the SEC’s allegations, but he declined to say whether it was broader. On the New York Stock Exchange, shares of Qwest rose 12 cents, or 3.6 percent, to close at $3.44. Its shares have been rising since sinking to a 52-week low of $2.56 in August. 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. Federal regulators began investigating Qwest in 2002 for allegedly inflating revenue through fraudulent transactions with other telecommunications companies. Since then, the company restated financial results for 2001 and 2002 to lower revenue by about $2.5 billion. The complaint filed Thursday also alleges Qwest booked anticipated revenue long before it materialized, that its former phone book division delayed or moved up publication dates to artificially inflate revenue figures, and that at least one senior Qwest employees pressured vendors to allow Qwest executives to invest in their initial public stock offerings. The settlement requires Qwest to hire a permanent chief compliance officer to ensure it obeys federal laws. The officer will report to a committee of outside directors. The complaint is harshly critical of senior Qwest managers but identifies them only by title and does not mention them by name. The SEC has sued a number of former and current employees. The Wall Street Journal reported last month that the SEC has notified former Qwest CEO Joseph Nacchio that its staff would recommend civil charges be filed. Nacchio, who left the company in 2002, denied wrongdoing. “Nothing about this settlement changes the facts,” a spokesman said Thursday. “Mr. Nacchio never did anything improper or illegal — nor instructed anyone else to do anything improper or illegal — during his tenure as CEO of Qwest.” About a dozen former Qwest executives either have settled allegations or have been targeted in civil or criminal cases. In February 2003, Attorney General John Ashcroft announced indictments against four former Qwest officials accused of a scheme to inflate revenues. Two of them pleaded guilty in plea agreements with the government, and two were acquitted. Copyright 2004 Associated Press. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.

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