& cplSiteName &

Sources: Qwest Case Broadening

Light Reading
News Analysis
Light Reading
11/10/2003
50%
50%

The investigations into Qwest Communications International Inc.'s (NYSE: Q) past are beginning to reach far and wide. The government is now broadening the investigation to include several equipment companies associated with Qwest, sources close to the situation say. They're searching for clues to whether Qwest executives misreported facts relating to the relationships between the carrier and its suppliers. Several investigations involving Qwest have been developing over the year. In February, the Securities and Exchange Commission (SEC) filed a civil suit for fraud against eight executives and employees of Qwest. The agency claims the defendants played with the numbers so investors would believe the company was doing better than it actually was. That investigation continues (see Prosecutors' Party at Qwest). In early October the SEC said it was taking a more careful look at the relationship between Redback Networks Inc. (Nasdaq: RBAK) and Qwest (see SEC Digging Deeper at Redback). Now it appears that the Department of Justice, which is proceeding with its own criminal investigation of Qwest, may also take an interest in this relationship, as well as other relationships Qwest had with equipment suppliers. The DOJ investigations have so far resulted in an indictment charging four former Qwest officials of helping the carrier falsely recognize more than $33 million in revenues in 2001 (see Former Qwest Execs Indicted for Fraud). The two cases have some similarities and, in fact, the SEC is holding its case until the DOJ finishes up. An element of both cases is the alleged practice of the defendants helping deliver unnecessary telecom gear and services to customers so Qwest could book enough revenues and make its quarterly financial projections. On top of that, several individuals are suing Qwest for securities violations and other things, generating a slew of investigative inquiries flowing from lawyers' offices to Qwest and its assorted telecom gear providers. Only Redback has publicly acknowledged that the SEC is looking at its relationship with Qwest (see SEC Digging Deeper at Redback). Redback's senior VP of field operations, Joel Arnold, was one of the eight people charged in the SEC's civil suit, and he continues to play a role in the day-to-day business of the company, which last week filed for bankruptcy protection (see Redback Exec Part of Criminal Probe and Redback's Arnold Included in SEC Suit). The task of proving a willful violation of accounting laws is tough, legal experts say. But one way to get there is to examine presumed conflicts of interest -- such as the practice of carrier executives accepting stock from potential customers -- to see whether any sordid details were misreported or left out altogether.

It's hard to say what kinds of details the Justice Department is looking into. It declined to comment for this story. There are several instances where Qwest forged reciprocal relationships that may be of interest. These examples, culled from SEC filings and Light Reading reports, give some idea of the company's practices when working with up-and-coming startups or newly public companies.

  • In early 2000, Qwest bought several different classes of Covad Communications Inc. (OTC: COVD) shares, representing an aggregate investment of $15 million. "Concurrently with these strategic equity investments, we entered into commercial agreements with... Qwest," Covad's SEC filings state. "These agreements provide for the purchase, marketing and resale of our services at volume discounts..."
  • Qwest has told Light Reading that it helped CoSine Communications Inc. (Nasdaq: COSN) design, test, and analyze its equipment during the company's early days. In return, CoSine let some senior Qwest executives -- including former executive VP of corporate development, Marc Weisberg; executive VP and general counsel Drake Tempest; and executive VP and chief strategy officer Lewis Wilks -- buy "friends and family" shares before the startup went public. CoSine went public in 1999 and, in February 2000, it announced that Qwest had placed a multimillion-dollar purchase order for its gear (see Is Qwest Shunning Startups?).
  • Qwest got warrants for agreeing to buy Tellium Inc.'s (Nasdaq: TELM - message board) gear. Qwest executives accepted some $10 million worth of stock options from the startup in exchange for being allowed into its network (see Tellium Lawsuits Allege Rigged IPO). Weisberg was one executive who enjoyed Qwest's cozy relationship with CoSine and other startups, landing a board seat at Tellium for a time (see Love Lost for Tellium).
  • Sometimes, Qwest's relationship with kindred startups didn't fare so well. In 2000, it agreed to purchase some $150 million of equipment from Corvis Corp. (Nasdaq: CORV) within two years. Some months later, it lopped $110 million from the purchase order (see Corvis's Qwest Deal Reduced by $138M).
  • In 2000 and 2001, Qwest bought more than $80 million worth of gear from Redback Networks. During that time, Qwest's Cyber Solutions group announced a five-year, $18 million contract with Redback to help the vendor with enterprise resource planning, customer relationship management, and manufacturing operations.
  • Kleiner Perkins Caufield & Byers partner and Qwest board member Vinod Khosla invested in or served on the boards of several firms that had dealings with Qwest, including Redback, CoSine, Corvis, and Juniper Networks Inc. (Nasdaq: JNPR). Khosla, through a spokesperson, says he hasn't been contacted by the Justice Department regarding any of the Qwest investigations. He declined further comment.
The acceptance of stock options from suppliers was a widespread practice during the peak of the Internet bubble -- and the practice itself isn't necessarily illegal. Where it may be bad news for Qwest, legal experts say, is if prosecutors find some evidence that executives involved were willfully misleading in their representation of the deals.

— Phil Harvey, Senior Editor, Light Reading

(19)  | 
Comment  | 
Print  | 
Newest First  |  Oldest First  |  Threaded View        ADD A COMMENT
Page 1 / 2   >   >>
fw23
50%
50%
fw23,
User Rank: Light Beer
12/4/2012 | 11:16:10 PM
re: Sources: Qwest Case Broadening

You should add Avici to the list. The situation
is similar to some of the others cited.
lightreceding
50%
50%
lightreceding,
User Rank: Light Beer
12/4/2012 | 11:16:03 PM
re: Sources: Qwest Case Broadening
Much of the equipment sold to Qwest by Redback sat in warehouses and was unused by Qwest. Redback not only announced application services, which were taken in trade, and then later cancelled, but they also took OC3 feeds from Qwest to small sales offices that didn't need them and they kept the feeds even when the offices were vacated. Joel Arnold was at Qwest in a senior management sales role at the time this was going on. Joel is being kept on at Redback by Kevin DeNuncio even though he is being sued by the SEC and investigated by the DOJ and bringing harmful attention on Redback and hurting customer relations. Kevin was in charge of Service Provider sales at Cisco during the time that Joel was at Qwest and his group sold large amounts of equipment to Qwest. Kevin was ousted from Cisco when it was found that his group had pumped the sales numbers by booking nonexistent orders. Cisco took a huge write off and had to debook these fradulent orders. There is probably a lot more to the Arnold and DeNuncio connection.
WiserNow
50%
50%
WiserNow,
User Rank: Light Beer
12/4/2012 | 11:16:01 PM
re: Sources: Qwest Case Broadening
They filed a lawsuit last year sometime, but it seems to have been forgotten. Anyone know the outcome?
AAL5
50%
50%
AAL5,
User Rank: Light Beer
12/4/2012 | 11:16:00 PM
re: Sources: Qwest Case Broadening
I've said it before but its worth saying again...

Bobbymax you are the biggest idiot I have ever encountered in any online forum.

You know nothing about anything but still you think people care about your bigotted, illogical ranting.

I use to think there was a chance for you to make a positive contribution to this forum.

I was sadly mistaken.


Hugs and kisses

AAL5
BobbyMax
50%
50%
BobbyMax,
User Rank: Light Beer
12/4/2012 | 11:16:00 PM
re: Sources: Qwest Case Broadening
What Quest has done has simply not happened. It is case of corruption and deceit in which the copany auditors failed to conduct a proper audit.

What I find most troublesome is that the US Government does not mind heavy handed crimes perpetrated by rich and influential people. But the Department Justice goes crazy involving minor crimes and transgressions. The foreign jornalists and the UN do not report the behavior of the government toward poor and unprivilleged people.

"Dr." Nachio was the most greedy, cunning and unprncipled person. During his last days at Qwest, Nachio walked away with about $150 million. The Board members did not have the honesty to withhold the money from Nachio until he was cleared of all the charges. The Qwest Board did not place the interests of the shareholders ahead of other considerations. The current board should be asked to resign so that a new board can be elected by the sharehoders.

I had mentioned about two years ago or so that Qwest has become a test lab for many junky companies. It is now clear as to why this was done. This was done in exchange for shares of the companies that were going public.

Normally RBOCs do not buy from start-ups. But Qwest was prepared to offer its support to third rare vendors like Redback. Qwest did this in exchange for getting shares at reduced prices.

Qwest also had expanded abroad without any consideration of the shareholders interests. They just wanted to travel to Europe and load the company with all kind if expenses..

Even when Nachio left,the Quest Board appointed President and CEO of Ameritech as its new CEO. The new CEO did not have a good record of performance even then he was selected.

The whole industry is full of cases where qualifications are seldom used in selecting a candidate. This corrupt practice is likely to shape the future of this country. Many nations would hesitate to buy US products based on the level of corruption thatcurrently exists.
DarkWriting
50%
50%
DarkWriting,
User Rank: Light Beer
12/4/2012 | 11:15:57 PM
re: Sources: Qwest Case Broadening
AAL5,

Just what was it in BM's latest post to this thread that you consider illogical ranting? I will admit that he/she jumps to conclusions once in a while but it does appear that he/she does have some knowledge of the indusry. If you (and GEA) are going to make personal attacks, at least you could point out some specifics for the posting in question.

DW
lightmaven
50%
50%
lightmaven,
User Rank: Light Beer
12/4/2012 | 11:15:57 PM
re: Sources: Qwest Case Broadening
Surprised that Movaz's name hasn't come up in the list of suspect relationships. Given their connection to the Anschutz family and that Qwest felt compelled to purchase a product that had yet to exist.
gea
50%
50%
gea,
User Rank: Light Beer
12/4/2012 | 11:15:55 PM
re: Sources: Qwest Case Broadening
BobbyMax:

All your base are belong to us.
gea
50%
50%
gea,
User Rank: Light Beer
12/4/2012 | 11:15:54 PM
re: Sources: Qwest Case Broadening
"At least, BM gave some reasoning and opinoin of his own, but you simply gave personal attack."

How is "All your base are belong to us" a personal attack?
IP4Telecom
50%
50%
IP4Telecom,
User Rank: Light Beer
12/4/2012 | 11:15:54 PM
re: Sources: Qwest Case Broadening
Gea,

I do not know what is going on between you and BM. But at least I observed that everytime BM posted a message, you replyed with the same annoying garbage. At least, BM gave some reasoning and opinoin of his own, but you simply gave personal attack.

I am surprised that all the readers have to tolerate your garbage post for so long and no one speak up.

Clean up this forum and be constructive. You are annoying.
Page 1 / 2   >   >>
From The Founder
Kicking off BCE 2017, Light Reading founder Steve Saunders lays blame for NFV's slow ramp-up and urges telecom to return to old-fashioned standards building and interoperability.
Flash Poll
Live Streaming Video
Charting the CSP's Future
Six different communications service providers join to debate their visions of the future CSP, following a landmark presentation from AT&T on its massive virtualization efforts and a look back on where the telecom industry has been and where it's going from two industry veterans.
Women in Comms Introduction Videos
Cisco: Mentoring Critical to Attract & Retain Women

7|19|17   |   6:40   |   (1) comment


Liz Centoni, senior vice president and general manager of Cisco's Computing System Product Group, shares why mentoring in all its forms is important for women and what Cisco is doing that's made a difference for women in tech.
LRTV Custom TV
Gigabit LTE With Snapdragon 835

7|12|17   |     |   (1) comment


At an event in Wembley stadium, EE used its live network to demonstrate gigabit LTE using a Sony Xperia XZ Premium smartphone with a Qualcomm Snapdragon 835 chip.
LRTV Custom TV
Implementing Machine Intelligence With Guavus

7|12|17   |     |   (0) comments


Guavus unites big data and machine intelligence, enabling many of the the largest service providers in the world to save money and drive measureable revenue. Learn how applying Machine Intelligence substantially reduces operational costs and in many cases can eliminate subscriber impact, meaning a better subscriber experience and higher NPS.
LRTV Custom TV
Unlocking Customer Experience Insights With Machine Intelligence

7|12|17   |     |   (0) comments


When used to analyze operational data and to drive operational decisions, machine intelligence reduces the number of tasks which require human intervention. Guavus invested in Machine Intelligence early. Learn about the difference between Machine Learning and Machine Intelligence.
Women in Comms Introduction Videos
Verizon VP Talks Network, Career Planning

7|12|17   |   4:49   |   (0) comments


Heidi Hemmer, vice president of Technology, Strategy & Planning at Verizon, shares how bold bets and the future of tech define her career.
Telecom Innovators Video Showcase
Masergy's NFV Journey

7|11|17   |     |   (0) comments


Ray Watson, vice president of global technology at Masergy, discusses the advantages and challenges in entering the still-maturing NFV market for the past three years.
Telecom Innovators Video Showcase
Mavenir on RCS Cloud Platform & Multi-ID

7|10|17   |     |   (0) comments


Guillaume Le Mener, head of marketing and corporate development at Mavenir, discussed RCS and the recent launch of Multi-ID, which supports T-Mobile's DIGITS, the revolutionary new technology that breaks down the limitation of one number per phone and one phone per number.
LRTV Custom TV
ADTRAN Executive Outlines Trends in Next-Generation 10-Gigabit Cable Networks

7|10|17   |     |   (0) comments


Hossam Salib, VP of Cable and Wireless Strategy at ADTRAN, outlines key trends as MSOs begin to deploy next-generation Gigabit and 10-Gigabit cable networks. In the interview, Hossam outlines the advantages of a Fiber Deep architecture, FTTH options including EPON and RFoG, and the importance of SDN and NFV in building next-generation high-bandwidth cable networks.
LRTV Interviews
Global Capacity: Bandwidth Demand Driving Ethernet Growth

7|6|17   |   6:37   |   (0) comments


At Light Reading's Big Communications Event in Austin, Texas, Global Capacity's VP of Marketing Mary Stanhope talks about how the demand for bandwidth is changing the way service providers deliver broadband services.
LRTV Interviews
Colt's Services Chief on Digital Delivery

7|5|17   |   16:12   |   (0) comments


Rogier Bronsgeest, the chief customer experience officer (chief CEO!) at Colt, discusses the way in which the service provider interacts with its customers these days and his aggressive net promoter score (NPS) targets.
Women in Comms Introduction Videos
BT VP: Women Should Fill Security Talent Gap

7|5|17   |   6:00   |   (2) comments


By 2020 there will be six security jobs for every qualified worker, and Kate Kuehn, vice president of Security for BT in the Americas, says BT wants to encourage women to fill the shortage in jobs.
LRTV Interviews
Colt Sales Exec on Services Trends

7|4|17   |   12:59   |   (0) comments


Colt's sales director for enterprise, James Kershaw, sheds some light on the services currently in demand and how network upgrades are influencing customer demand.
Upcoming Live Events
September 28, 2017, Denver, CO
October 18, 2017, Colorado Convention Center - Denver, CO
November 1, 2017, The Royal Garden Hotel
November 1, 2017, The Montcalm Marble Arch
November 2, 2017, 8 Northumberland Avenue, London, UK
November 30, 2017, The Westin Times Square
All Upcoming Live Events
Infographics
With the mobile ecosystem becoming increasingly vulnerable to security threats, AdaptiveMobile has laid out some of the key considerations for the wireless community.
Hot Topics
Mobile to Power Online Video Consumption – Zenith
Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation, 7/19/2017
Can Mushroom Sprout in Crowded SD-WAN Field?
Carol Wilson, Editor-at-large, 7/18/2017
AI Will Be Ubiquitous in 2020 but Overhyped in 2017 – Gartner
Sarah Thomas, Director, Women in Comms, 7/18/2017
Facing the Facebook Video Threat
Gary Miles, Chief Marketing Officer, Amdocs, 7/17/2017
Brocade, Broadcom Merger in Doubt
Iain Morris, News Editor, 7/19/2017
Like Us on Facebook
Twitter Feed
BETWEEN THE CEOs - Executive Interviews
Following a recent board meeting, the New IP Agency (NIA) has a new strategy to help accelerate the adoption of NFV capabilities, explains the Agency's Founder and Secretary, Steve Saunders.
One of the nice bits of my job (other than the teeny tiny salary, obviously) is that I get to pick and choose who I interview for this slot on the Light Reading home ...
Animals with Phones
Fuzzy Quick Fix Click Here
If you can't access it, is it really broken?
Latest Comment
Live Digital Audio

Playing it safe can only get you so far. Sometimes the biggest bets have the biggest payouts, and that is true in your career as well. For this radio show, Caroline Chan, general manager of the 5G Infrastructure Division of the Network Platform Group at Intel, will share her own personal story of how she successfully took big bets to build a successful career, as well as offer advice on how you can do the same. We’ll cover everything from how to overcome fear and manage risk, how to be prepared for where technology is going in the future and how to structure your career in a way to ensure you keep progressing. Chan, a seasoned telecom veteran and effective risk taker herself, will also leave plenty of time to answer all your questions live on the air.