Accounting & Tax

Qwest to Settle Claims for $400 Million

The agreement would dismiss all claims against Qwest and individual defendants except former chief executive officer Joseph Nacchio and former chie...
Stephen TaubNovember 1, 2005

Qwest Communications International Inc. announced that it would pay certain former investors $400 million to settle charges stemming from the company’s accounting scandal.

The settlement covers investors who purchased Qwest securities between May 24, 1999 and July 28, 2002. Under the agreement, Qwest would pay $390 million while its former auditor, Arthur Andersen, would kick in $10 million.

The company noted that the settlement agreement can be terminated under certain circumstances, including in the event that the Securities and Exchange Commission elects not to distribute to the putative class members the $250 million penalty that Qwest has already committed to the SEC. The company has paid half that sum and must deliver the other half in December.

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The SEC had alleged that between 1999 and 2002, Qwest fraudulently recognized over $3.8 billion in revenue and excluded $231 million in expenses as part of a scheme to meet revenue and earnings projections.

Under the settlement with investors, all claims would be dismissed against Qwest and individual defendants except former chief executive officer Joseph P. Nacchio and former chief financial officer Robert S. Woodruff. As is typical for such agreements, none of the parties to the settlement either admitted or denied wrongdoing or liability.

According to Bloomberg, Moody’s Investors Service stated Qwest can afford to pay $500 million to settle lawsuits without losing its credit rating. “The magnitude and timing of cash payments associated with this litigation may be manageable,” Moody’s analyst Dennis Saputo reportedly wrote.