Former Qwest Execs Indicted for Fraud

WASHINGTON -- Attorney General John Ashcroft today joined Deputy Attorney General Larry Thompson, the chairman of the President's Corporate Fraud Task Force, and U.S. Attorney John W. Suthers of the District of Colorado to announce that a federal grand jury in Denver has returned a 12-count indictment charging four former executives of Qwest Communications with corporate accounting fraud. The defendants charged in today's indictment are:

The indictment alleges that the defendants devised a scheme to falsely recognize more than $33 million of additional revenue for the 2nd quarter of 2001 – a quarter for which Qwest was experiencing weak sales. The defendants allegedly sought to fill a gap in revenue by the company's Global Business Unit by immediately reporting millions of dollars from a purchase order with the Arizona School Facilities Board – in violation of Securities and Exchange Commission rules. The indictment also alleges that the defendants sought to hide their actions by falsifying documents and engaging in securities and mail fraud. "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," said Attorney General John Ashcroft. Arrest warrants have been issued for the defendants named in today's indictment, and they have been given 48 hours to surrender to the U.S. Marshals Service. Qwest is a publicly-held company whose shares are traded on the New York Stock Exchange. Qwest is obligated to, and did, file quarterly reports with the SEC. According to the indictment, during the 2nd quarter of 2001, the Global Business Unit at Qwest was given a revenue target of $1.825 billion by Qwest management. This target was to be met through a combination of recurring revenue and non-recurring revenue, meaning that Qwest's sales teams needed to find and close new transactions in order for the company to reach its revenue targets. In January 2001, Qwest had entered into a purchase order with the Arizona School Facilities Board to design and implement a statewide school computer network, including Internet connectivity. According to the indictment, the defendants arranged for Qwest to enter into a "bill and hold" transaction – in which the seller sells equipment to a buyer, bills the customer and then holds the merchandise for later delivery. The indictment alleges that the defendants violated strict SEC requirements on "bill and hold" transactions by immediately recognizing the SFB revenue. As charged in the indictment, the defendants knew their transactions would meet none of the SEC's requirements, so they then filed false documents and took other steps to hide their actions. All four defendants are charged with:

"Today's indictment concludes only the first phase of the Qwest investigation by the Justice Department," said United States Attorney John Suthers, of the District of Colorado. "There are several other aspects of Qwest's corporate conduct and the conduct of its executives that are the subject of a continuing investigation." The Qwest Communications Arizona School Facilities Board case was investigated by the Federal Bureau of Investigation and the SEC. The case is being prosecuted by First Assistant U.S. Attorney Bill Leone and Assistant U.S. Attorneys William Taylor and Tim Neff. In addition to today's criminal charges, the SEC has filed civil fraud charges against eight current and former officers and employees of Qwest Communications International Inc., alleging they inflated the company's revenues by approximately $144 million in 2000 and 2001 in order to meet earnings projections and revenue expectations. The Commission's lawsuit, filed in U.S. District Court in Denver, seeks anti-fraud injunctions, civil money penalties, disgorgement of ill-gotten gains, and for certain defendants, a permanent bar from service as an officer or a director of a public company. The Corporate Fraud Task Force, chaired by Deputy Attorney General Thompson, was created by President Bush on July 9, 2002, to oversee and direct federal law enforcement actions against corporate corruption that had eroded investor confidence in the integrity of U.S. markets. The Justice Department and the Corporate Fraud Task Force brought criminal charges against more than 160 individuals, including executives and employees at WorldCom, Adelphia, Enron, Imclone and others. Qwest Communications International Inc.