Redback's Arnold Included in SEC Suit
Less than two months ago, he was named to a special leadership team during Redback's restructuring (see Redback Trims Losses, CFO). Now Arnold is among the group of former Qwest Communications International Inc. (NYSE: Q) executives being sued by the Securities and Exchange Commission (SEC) for fraud.
Prior to joining Redback, Arnold was the former senior vice president of Qwest's Global Business Unit. Representing more than $6 billion in revenue and more than 5,000 people, the division dealt with all of Qwest's large business customers, according to Arnold's management bio on Redback's Website.
The SEC alleges that Arnold and other current and former Qwest executives helped to inflate the carrier's revenues by about $144 million in 2000 and 2001. They did this in order to meet Qwest's earnings projections and revenue expectations, according to the suit filed by the SEC this week.
The SEC's civil suit comes in tandem with a 12-count federal indictment handed down this week (see Prosecutors' Party at Qwest). That indictment alleges that four former Qwest executives in the Global Business Unit tried to fill an expected revenue gap in the second quarter of 2001.
In its civil suit, the SEC is specifically concerned with transactions involving sales of Internet equipment and services to the Arizona School Facilities Board (ASFB) and Genuity Inc. (Nasdaq: GENU).
Qwest recognized approximately $33.6 million in revenue in the quarter ended June 30, 2001. The SEC alleges that had it not been for the ASFB transaction -- wherein Qwest immediately recognized revenue, while holding the merchandise for later delivery, in violation of SEC requirements -- Qwest would have fallen short of its projected 12 to 13 percent revenue growth for the quarter.
In the Genuity matter, the SEC alleges that Qwest improperly recognized revenue of approximately $2.6 million in the quarter ended Sept. 30, 2000, and an additional $8 million in the year ended Dec. 31, 2000, for services that Qwest had not yet provided.
Redback says it has no comment because the matter doesn't concern them. Besides the civil suit, however, the SEC is also seeking to permanently bar Arnold and the others from acting as directors or officers of any publicly held company. If that situation were to be realized, Arnold's career path at Redback would obviously be hindered.
Calls to Arnold's attorney had not been returned by press time.
— Phil Harvey, Senior Editor, Light Reading