Qwest faces criminal probe
msnbc.com
DOJ investigation follows SEC probe of accounting practices
By Deborah Solomon and Susan Pulliam
THE WALL STREET JOURNAL
July 5 — The Justice Department has launched a criminal investigation into Qwest Communications International Inc., the telecommunications concern that already is facing a regulatory probe into its accounting practices, according to people with knowledge of the situation.
QWEST, WHICH RECENTLY forced its chief executive to resign, is under investigation by the U.S. attorney’s office in Denver and the Federal Bureau of Investigation, these people said.
While the extent of the criminal investigation is unknown, Qwest already is facing scrutiny by the Securities and Exchange Commission into how the Denver company booked revenue in 2000 and 2001.
Drake S. Tempest, Qwest general counsel, said, “We have no reason to believe that we are the subject of any investigation by the Department of Justice. It is outrageous that we would learn about an investigation in this way. We have disclosed everything asked of us and have cooperated fully with the SEC and Congress.”
A spokesman for the U.S. attorney’s office in Denver declined to comment.
The investigation is the latest blow for the telecom company, which is struggling with $26.6 billion in debt and steep declines in its local and long-distance businesses. The company’s board recently asked Joseph P. Nacchio, its longtime chief executive officer, to resign as Qwest sagged from a crisis of investor confidence. Qwest’s stock has fallen more than 97% since its high of $57.88 in July 2000.
Qwest is just one of several former highflying telecom companies now under investigation by the Justice Department. Global Crossing Ltd. and WorldCom Inc. also are facing criminal investigations.
‘SWAP’ TRANSACTIONS AT ISSUE
A possible issue for Qwest is whether it properly recorded revenue. The company was one of the most aggressive users of “swap” transactions — selling long-term capacity on its fiber network to another carrier, buying the same amount of fiber on another carrier’s network and then booking the contract as revenue. The practice boosted Qwest’s revenue by more than $1 billion in 2001, according to filings with the SEC.
The SEC is investigating whether Qwest may have violated accounting rules by booking the swap deals all at one time instead of over a period of years that reflected the life of the contract.
Qwest also boosted sales by selling equipment to other companies and then leasing services back from those same concerns.
Last month, Novo Networks Inc., Dallas, sued Qwest alleging that it forced Novo to buy fiber-optic capacity valued at $15 million on Qwest’s network in exchange for receiving millions of dollars in business from Qwest. Qwest has disputed the charges. |
