Qwest Says It Will Clear Up COO’s Conflicting Testimony

Qwest Communications International Inc. said Friday that it would resolve conflicting testimony on the telephone company’s accounting given to Congress by Chief Operating Officer Afshin Mohebbi.

Qwest agreed to submit amended testimony Monday at the request of Rep. Michael G. Oxley (R-Ohio), chairman of the House Financial Services Committee. His panel approached the company after spotting conflicts in testimony Mohebbi gave to the House and Senate about accounting for swaps with other companies of fiber-optic network capacity.

“We are reasonably satisfied that most of the dirt that was under the carpet has been exposed, if not cleaned up,” said Bob Smith, president and chief investment officer of Sage Advisory Services Ltd., which has $2 billion in fixed-income assets, including Qwest bonds. “In times like this, any word that anyone utters becomes a potential liability.”

Questions about Mohebbi’s testimony come as the Securities and Exchange Commission and the Justice Department investigate Qwest’s bookkeeping. The Denver-based company, whose former Chief Executive Joseph Nacchio resigned in June and was replaced by Richard Notebaert, said it will restate results after misreporting at least $1.16 billion in fiber-optic network capacity sales from 1999 to 2001.

“We put the written testimony against what he said in the Senate and there were discrepancies in the testimony about the swaps accounting,” said Peggy Peterson, a spokeswoman for Oxley. “Given that they have a new CEO, a new management team, a new auditor, we agreed that they could provide amended testimony.”

Qwest shares fell 22 cents to $2.69 in New York Stock Exchange trading Friday. The shares have fallen 81% this year.

Mohebbi testified before the House panel’s investigation subcommittee on March 21 and before the Senate Commerce Committee on July 30.

In his House testimony, Mohebbi said Qwest’s accounting for the swap transactions, including exchanges of capacity with Global Crossing Ltd., “complies with generally accepted accounting principles.”

Mohebbi’s Senate testimony came two days after Qwest said it would restate previous years’ earnings, in part to reduce the revenue from swap transactions, including sales known as indefeasible rights of use, or IRUs. Qwest, which dismissed auditor Arthur Andersen this year, also said it improperly accounted for equipment sales and some expenses.

Any discrepancy between Mohebbi’s two statements “would be a result of our internal review that we may have misapplied the accounting for some of those [IRU] transactions,” said Qwest spokesman Tyler Gronbach.

Mohebbi, who remains Qwest’s COO, didn’t respond to requests for comment.