Qwest Executives Targeted in SEC Lawsuits Amidst Widespread Accounting Scandal

Strategic Insights -

In a continuation of the high-profile accounting scandals that plagued the telecommunications industry in the late 1990s, the Securities and Exchange Commission (SEC) has filed new lawsuits against former executives at Qwest Communications, alleging that they defrauded investors by overstating the company's growth. This move comes on the same day that the jury delivered a guilty verdict in the case of Bernard Ebbers, the former CEO of WorldCom, another telecom giant embroiled in a massive accounting scandal. As the SEC continues to scrutinize the industry, many investors who lost money in the fallout are welcoming the news, including Mimi Hull, head of the Association of US West Retirees, whose members were impacted by Qwest's stock price plummeting from over $60 to around $4.

Key Takeaways:

  • The SEC has filed new lawsuits against former Qwest Communications executives, including CEO Joseph Nacchio, alleging that they defrauded investors by overstating the company's growth starting in the late 1990s.
  • Qwest Communications admitted no wrongdoing in a previous settlement with the SEC last October, which resulted in a $250 million fine.
  • The SEC estimates that the Qwest executives named in the lawsuits earned around $300 million during the three years in which the agency says the company inflated its numbers.
  • Industry analyst Scott Cleland suggests that the practices of companies like WorldCom, which was also embroiled in an accounting scandal, may have encouraged others to engage in similar behavior.
  • The SEC allegations against Qwest executives include improperly reporting over $3 billion in revenue through deals with other companies and accounting maneuvers.
  • Former SEC investigator Carr Conway notes that while some of Qwest's actions may have fallen into gray areas, it is clear that some of the company's practices were improper.

Statistics:

  • The SEC alleges that Qwest executives improperly reported more than $3 billion in revenue.
  • The company's stock price plummeted from over $60 to around $4 after its accounting practices were exposed.
  • Qwest executives named in the lawsuits allegedly earned around $300 million during the three years the agency says the company inflated its numbers.
  • The SEC settled a previous case against Qwest for $250 million, with the company admitting no wrongdoing.

Sources:

  • NPR News: Jeff Brady reports from Denver. Available at: [www.npr.org/original_url/2005/03/14089100](http://www.npr.org/original_url/2005/03/14089100)
  • NPR News: The segment can also be found in "Morning Edition" archives from 2005, with an original URL of [www.npr.org/original_url/2005/03/14089100](http://www.npr.org/original_url/2005/03/14089100)