Ashcroft indicts four former Qwest execs for alleged fraud
WASHINGTON (AP) – Four former executives of Qwest Communications were accused in a federal fraud indictment Tuesday of devising a scheme to create more than $33 million by wrongly reporting a purchase order and covering it up. Attorney General John Ashcroft, announcing the indictment handed up by a federal grand jury in Denver, cited it as evidence of progress in the Bush administration’s campaign against corporate crime.
The defendants named in the 12-count indictment were accused of seeking to create over $33 million by wrongly reporting the order with the Arizona School Facilities Board.
The action violated Securities and Exchange Commission rules, the indictment said.
The government also charged that Qwest sold equipment including materials to create Internet access to the statewide school computer network and that it billed the customer while holding the merchandise for later delivery – a move that it said violated SEC rules.
The Justice Department also said that Quest knowingly filed false documents to hide its actions.
“As we continue our efforts to battle corporate fraud, our message is clear: We will protect the integrity of our markets by punishing those who falsify financial information out of sheer greed,” Ashcroft said in a statement.
Arrest warrants were issued for Grant Graham of Evergreen, Colo., chief financial officer for Qwest’s global business unit; Thomas Hall of Englewood, Colo., a senior vice president in the global business unit; John Walker of Littleton, Colo., a vice president in the unit; and Bryan Treadway of Atlanta, an assistant controller.
Ashcroft said the indicted business figures have 48 hours to report to authorities.
Qwest had been under investigation by both the Justice Department and the Securities and Exchange Commission and was the subject of congressional hearings into its financial practices. The department said its investigation was continuing.
The SEC filed related civil fraud charges against Graham, Hall, Treadway, Walker and four other former Qwest employees, alleging that they inflated the company’s revenues by some $144 million in 2000-2001 to meet Wall Street’s expectations. The SEC’s lawsuit filed in federal court in Denver seeks unspecified civil fines and restitution of allegedly ill-gotten gains, including salaries, bonuses and company stock.
“Accurate financial statements are the bedrock of our capital markets,” said the new SEC chairman, William H. Donaldson, who appeared with Ashcroft at Tuesday’s news conference.
He said the SEC “will pursue aggressively anyone and everyone who has participated in an illegal effort to misrepresent a company’s (financial reports) and mislead the investing public.”
The four other employees sued by the SEC are Joel Arnold, former senior vice president of the company’s Global Business division; Douglas K. Hutchins, a former director of the division; Richard L. Weston, former senior vice president of product development in Qwest’s Internet Solutions division; and William L. Eveleth, currently chief financial officer of the company’s corporate planning and operational finance division and a senior vice president of finance.
The probes have examined whether Qwest artificially inflated its revenues by swapping network capacity with another scandal-plagued telecommunications company, Global Crossing Ltd.
The company said it was restating its financial reports for 1999 to 2001 because of accounting errors, including $950 million in revenue booked from swaps.
The company fired Arthur Andersen LLP, the auditing firm that was convicted of obstruction of justice in the Enron collapse, and brought in KPMG LLP in June to look at its books.
Last June, chief executive Joseph Nacchio resigned under fire. Thousands of workers have been laid off and the company’s stock plummeted. Lawmakers have charged that Qwest executives cashed in millions of dollars in options before the stock fell.
The House Energy and Commerce Committee in December completed its own probe into Qwest’s business practices.
Qwest has had other woes as well. In August, Qwest agreed to pay the state of Colorado $1 million, plus payments to customers, to settle complaints that it failed to adequately inform consumers of the least expensive telephone service they could obtain, instead encouraging them to buy pricier packages. Others complained of poor customer service.
Qwest is the local phone company for 14 states extending from Minnesota west to Washington state and southwest to Arizona and New Mexico. It bought US West, one of the Baby Bells created from the breakup of AT&T, following a bidding war with Global Crossing.