SEC sues ex-Qwest CEO Nacchio, six others

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Other charges settled
The SEC is also seeking a court order requiring all seven to repay an amount to be determined at trial and civil penalties and that would include interest. It said none of the defendants, except for the two accountants, should ever serve as officers or directors of a public company.

Also Tuesday, the SEC settled charges with five other former Qwest officials. A spokesman declined comment on whether the agency’s investigation is complete, but a spokesman for the U.S. attorney’s office in Denver said the government’s criminal investigation was continuing.

Last fall, Qwest agreed to pay $250 million to settle SEC charges of fraud. The deal did not cover former executives like Nacchio and Szeliga, who now face charges including fraud, failure to maintain book and records, lying to auditors and false filings with the SEC.

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The SEC said Nacchio, Woodruff and Szeliga received secret compensation in the form of newly issued stock from companies doing business with Qwest or seeking deals with the company. The lawsuit also accuses the three of causing the manipulation of revenue associated with Qwest Dex, a subsidiary.

Mohebbi, Casey and Noyes, meanwhile, allegedly met goals by backdating contracts, hiding side agreements and making fiber-optic capacity swaps (IRU) with other telecoms to book one-time revenue. Documents released by a U.S. House committee in 2002 said the swaps appeared to have no other purpose than allowing the companies to inflate revenues to meet analyst expectations.

“Qwest relied so heavily on the immediate revenue recognition from one-time IRU and equipment sales transactions to meet the aggressive revenue and growth targets that Qwest management and employees referred to the practice as a ’drug,’ an ’addiction,’ ’heroin,’ and ’cocaine on steroids,”’ the SEC said in Tuesday’s filing.

The government has had mixed success prosecuting former Qwest executives. Of four men accused of improperly booking revenue in an Arizona schools deal, two were acquitted, another was sentenced to probation and a fourth is expected to receive probation.

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