Pressured by the claim that its case could lead to a breach in national security, the Securities and Exchange Commission may back off on some of the charges it has levied against several former Qwest Communications executives. The regulator said it will consider altering its civil fraud charges against former chief executive officer Joseph Nacchio and four others so the allegations would not involve the company’s secret business dealings with clandestine government agencies, according to the Associated Press.
This latest development is the result of a request from U.S. Magistrate Craig Shaffer, who gave the SEC 30 days to review the case, according to the wire service. Reportedly, the Justice Department wants to prevent the release of material related to secret Qwest negotiations, arguing that it would compromise national security. For her part, SEC attorney Polly Atkinson said most of charges rely on historical data, not prospective government contracts, according to the AP.
The SEC lawsuit alleges that the individuals engaged in a $3 billion accounting fraud that led to Qwest’s merger with US West in June 2000. Qwest subsequently restated revenue by $2.5 billion in 2003.
According to the AP, classified government material is related to Nacchio’s claims that Qwest was anticipating possible lucrative business contracts that gave him hope for the telecom company’s financial future.
Nearly three years ago, the SEC filed its allegations of fraud and securities-laws violations against Nacchio, ex-CFOs Robert Woodruff and Robin Szeliga, former accountants James Kozlowski and Frank Noyes, one-time COO Afshin Mohebbi, and former executive vice president Gregory Casey.
Nacchio has been sentenced to six years in prison for an insider-trading conviction following Szeliga’s testimony against him. Nacchio is free while awaiting his appeal. Szeliga received two years’ probation after pleading guilty to one count of insider trading.
Qwest also settled its own, separate SEC fraud charges by agreeing to pay the regulator $250 million.