Four months later, on July 30, Mohebbi was on the other side of Capitol Hill, where he told the Senate Commerce Committee: "Earlier this year, the company began an analysis of accounting treatment for IRUs. We have tentatively concluded that our accounting policies at the time were incorrectly applied in connection with certain transactions."
Mohebbi didn't tell the Senate specifically which transactions were being second-guessed, but in its earnings restatement announced two days prior to Mohebbi's Senate testimony, Qwest said that it improperly accounted for $1.16 billion in optical capacity IRUs in 1999, 2000, and 2001.
Last week, Bloomberg News reported that House Financial Services Committee chairman Michael Oxley (R-Ohio) has questioned Mohebbi about the differences in his House and Senate testimony and asked him to amend the statement he gave the House committee in March to resolve the discrepancy.
A Qwest official told Bloomberg that the company welcomed the opportunity to explain the difference in the testimony before the House and Senate committees. Mohebbi was not available for comment.
Also last week, the Securities and Exchange Commission banned treating IRUs as revenue. Accounting experts widely expect the new rule to spark a rash of earnings restatements among the many telecom and energy-trading firms that had deployed this practice in recent years.
Meanwhile, the pressure on Qwest is building on other fronts. Not only is the company the subject of separate investigations into its accounting practices by the SEC, the Justice Department, and the U.S. Attorney's Office in Denver, but it is also a party to other investigations by federal investigators into Citigroup Inc. That company acted as an investment banker for Qwest and for AOL Time Warner Inc., with which it conducted some IRU swaps.
The investigations into those two companies also appears to be reaching a crucial phase.
On Friday, the Wall Street Journal reported that New York State Attorney General Eliot Spitzer is now investigating the role played by Citi chairman and CEO Sanford Weill in the decision by former star analyst Jack Grubman to raise his rating on AT&T Corp. just prior to the spin-off of the company's wireless unit.
As the Journal reported, Grubman had been critical of AT&T for most of his years as a Wall Street analyst. But he upgraded the company to a buy just prior to the April 2000 spin-off of the wireless unit. Citi's investment-banking division, Salomon Smith Barney, was one of the offering's underwriters, earning a reported $45 million in fees. Six months later, Grubman downgraded the stock.
Weill is a member of AT&T's board of directors. According to the article in the Journal, the telephone company's CEO, Michael Armstrong, had regularly asked Weill to get Grubman to be more positive about AT&T.
Spitzer is said to be concerned that Salomon and other investment banks have hyped the stocks of companies with which they had investment-banking relationships, thereby misleading investors.
The Journal also reported on Friday that AOL may be headed for a second huge goodwill write-off. In the first quarter, the media giant took a $54.2 billion pretax charge to write down the value of much of the goodwill assets it booked in its acquisition of Time Warner.
However, as the Journal reported, AOL's earlier write-off didn't touch the assets of its America Online Internet business, which currently has total assets of $40.3 billion. But in a business climate that is seeing a continued erosion in the value of Internet-related assets, the Journal questioned whether the company may have to take some write-offs against both its Internet and cable TV operations.
The risk to AOL, the Journal reported, is that a significant write-off could reduce its current book value of $97.7 billion to a level perilously close to the $50 billion threshold set up in loan agreements the company signed with its bankers in July. If the firm's book value falls below $50 billion, it could be faced with higher interest rates or shorter maturities on its existing debt.
Reader Comments» Post a comment