Federal prosecutors say they are investigating criminal violations related to the company's fraudulent accounting.
By Associated Press
Published October 22, 2004
DENVER - U.S. prosecutors said Thursday Qwest Communications isn't off the hook, even though the company agreed to a $250-million civil fine for its addiction to fraudulent accounting.
The Securities and Exchange Commission set the fine, accusing senior managers of directing a scheme to record one-time revenue from the sale of assets as recurring revenue from operations.
After the settlement was announced, Denver U.S. attorney's spokesman Jeff Dorchner said federal prosecutors are still investigating the company for possible criminal violations.
Dorchner said the investigation includes the SEC's allegations, but he declined to say whether it was broader. He could not say when the criminal investigation might end.
The SEC said it is also still investigating individuals in the case, and the settlement requires Qwest to cooperate.
In a scathing 56-page complaint, the SEC accused Qwest of a "massive financial fraud" for falsely reporting sales or trades of capacity on its fiber-optic cables as recurring revenue.
It said Qwest was so dependent on the tactic to meet its growth projections that employees compared the company to a drug addict, referring to the transactions as Qwest's "heroin."
The fine was the second-largest levied by the SEC for financial reporting fraud, after a $750-million penalty against WorldCom, SEC spokesman John Heinie said.
Donna Jaegers, a research analyst with Janco Partners in Denver, said Qwest was expecting worse and had set aside $500-million.
"To the average person on the street, wow, $250-million is huge. To the people who are following it, it's not that much," she said.
The SEC complaint accused Qwest of understating by $850-million its expenses from its takeover of US West in 2000. It also alleges the company fraudulently excluded $231-million in expenses from its books and made $256-million in accounting errors.
