Risk & Compliance

Qwest Fine of $250 Million Expected

The fine would be the second largest in history against an operating company, trailing only the $750 million levied against WorldCom.
Stephen TaubSeptember 14, 2004

Qwest Communications International is said to be close to a settlement that could help put its accounting scandal behind it.

The telecommunications company has agreed to settle fraud charges brought by the Securities and Exchange Commission for $250 million, according to the Associated Press. The news services cited John Thompson, a Communications Workers of America vice president. An official announcement will be made in a few weeks, the report added.

The union official told the wire service he was notified by a Qwest official of the tentative settlement with the SEC, although he conceded that he did not have specifics.

Qwest spokesman Bob Toevs told The New York Times that “Qwest continues in its efforts to cooperate with the SEC and the [U.S. Department of Justice] in their respective investigations.”

SEC officials declined to comment, according to both AP and the Times.

Justice Department spokesman Jeff Dorschner told the wire service he had not heard of a settlement with Qwest. “If there were to be a settlement, it would no way impact the Justice Department investigation,” he reportedly said.

Scott Cleland, an analyst with Precursor, a telecommunications consultancy, however, said that the $250 million settlement could resolve part of the Department of Justice probe, according to the Times. He noted that the Justice Department and the SEC often coordinate parts of their investigations.

The company reportedly is not expected to admit or deny wrongdoing when the final settlement is announced.

If the settlement goes through as reported, it would become the second-largest fine in history against an operating company, trailing the $750 million penalty against WorldCom, now called MCI Inc., according to The Wall Street Journal.

Qwest restated earnings by $2.2 billion and revenue by $2.5 billion in revenue for 2000 and 2001, mostly as a result of revenue recognition issues.

The final draft of the SEC’s complaint against the telephone company asserts that to live up to high expectations, Qwest senior executives and staff took part in a culture in which fraud and hype were pervasive, according to the Journal . The report also says the complaint alleges that Qwest hyped communications about its performance with investors, the paper added.

In June, the company reportedly increased its legal reserves by $300 million, to a total of $500 million.

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