SEC Sues Former Qwest CEO, 6 Others

The Securities and Exchange Commission accused a former chief executive of Qwest Communications International Inc. and six others Tuesday of orchestrating a massive financial fraud that concealed the source of billions of dollars in revenue later wiped off the books.

The civil lawsuit said former Chief Executive Joseph Nacchio and others created a “culture of fear” and put enormous pressure on employees to meet revenue and earnings goals through bogus sales procedures that became an addiction.

The suit is part of the government’s three-year investigation of Denver-based Qwest, the primary local phone provider in 14 Western states. It was filed hours after former WorldCom CEO Bernard J. Ebbers was convicted in New York of engineering a multibillion-dollar accounting scheme at his Mississippi-based telecom company.

The SEC said the fraud at Qwest occurred from April 1999 to March 2002, allowing the company to improperly report about $3 billion in revenue that was later restated and helping its 2000 merger with US West.

The SEC said Qwest repeatedly booked revenue from one-time sales while falsely claiming to investors that the income was recurring. It said the defendants reaped tens of millions in profit for themselves while they covered up the scheme from investors and the public.

Also named in the SEC’s complaint were former Chief Financial Officers Robert Woodruff and Robin Szeliga; former Chief Operating Officer Afshin Mohebbi; Gregory Casey, a former executive vice president of Qwest’s wholesale business; and James Kozlowski and Frank Noyes, two former accountants.

The SEC is seeking a court order that all seven defendants repay an amount to be determined at trial and civil penalties. It said none of them, except for the two accountants, should ever serve as officers or directors of a public company.

Nacchio alone reaped an estimated $216 million during the period in question through salary, bonuses, stock sales and other compensation, the SEC said.

Charles Stillman, an attorney for Nacchio, said his client had never misrepresented Qwest’s financial condition.

“The SEC unfairly seeks to impute to Mr. Nacchio and others at Qwest responsibility for the results of a widespread industry downturn in a deteriorating economy,” Stillman said. “As Mr. Nacchio has consistently stated, he 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.”

A Qwest spokesman, Steve Hammack, said the allegations involved long-ago events that no longer concerned the company.

Also Tuesday, former Qwest executives William Eveleth, Roger Hoaglund, Mark Schumacher, Brian Treadway and Jennifer Black settled SEC lawsuits without admitting or denying wrongdoing.

SEC spokesman Don Hoerl declined to comment on whether the agency was finished investigating Qwest. A spokesman for the U.S. attorney’s office in Denver said the government’s criminal investigation was continuing.

Qwest shares fell 5 cents to $3.86 on the New York Stock Exchange.