RealTime IT News

Qwest Settles Fraud Charges

Qwest Communications International will pay $250 million to settle fraud charges brought by the U.S. Securities and Exchange Commission (SEC), the company and the agency announced.

The pact ends a two-and-a-half year investigation that recalls a time when pressure to meet unrealistic expectations and lax internal oversight triggered a string of high-profile accounting and securities scandals.

From 1999 to 2003, Qwest allegedly recognized nearly $4 billion in revenue and excluded $231 million in expenses "as part of a multi-faceted fraudulent scheme to meet optimistic and unsupportable revenue and earnings projections," the SEC said in its complaint.

Under the agreement, the Denver voice and data carrier is not required to admit or deny liability, a common practice in resolving SEC charges.

The $250 million cash payment will be made in two installments -- $125 million within 20 business days of the entry of the judgment and $125 million by Dec. 31, 2005. The SEC said it considered Qwest's current financial situation when deciding the size of the fine.

The money will be distributed to defrauded investors according to a provision of the Sarbanes-Oxley, a law passed in response to the corporate scandals of the dot-com bust.

In addition, Qwest is required to permanently employ a chief compliance officer (CCO) who reports to a committee of outside directors and pledges to follow securities and anti-fraud laws.

"The CCO shall aid the board in maintaining, implementing and enforcing standards of conduct for the corporation," the SEC said. "The CCO shall also respond to employee concerns that may implicate matters of ethics or questionable business practices."

Richard C. Notebaert, who joined Qwest in 2002 to stabilize the company after serving as head of Ameritech, is looking ahead.

"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," said in a statement.

The Qwest SEC settlement does not preclude criminal charges being brought in relation to the case.

"The Justice Department continues its criminal investigation into Qwest's business practices," Jeff Dorschner, a spokesman for the U.S. Attorney's Office, District of Colorado, told internetnews.com. "No timetable is available regarding if and when additional indictments will be sought."