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United States. Securities and Exchange Commission

SEC Sues Qwest Executives for $3 Billion Accounting Fraud

Strategic Insights

— 1 min read

The Securities and Exchange Commission (SEC) has filed a lawsuit against seven former Qwest Communications executives, including former CEO Joseph P. Nacchio, accusing them of orchestrating a $3 billion accounting fraud to deceive investors during the telecommunications bubble. The SEC is seeking to force the executives to return their ill-gotten gains, with Nacchio alone reaping $216 million. The lawsuit alleges that Qwest executives inflated revenues and misled investors, including in a failed attempt to acquire U.S. West in 2000. The company itself has already reached a $250 million settlement with the SEC over the accounting scandal.

Key Takeaways:

  • The SEC lawsuit accuses seven former Qwest executives, including former CEO Joseph P. Nacchio, of orchestrating a $3 billion accounting fraud.
  • The scheme allegedly involved inflating revenues and misleading investors, including in a failed attempt to acquire U.S. West in 2000.
  • Nacchio alone reaped $216 million from the scheme, with the others taking in $84 million.
  • The lawsuit also accuses Qwest executives of frequently misleading outside auditors and using "smoke and mirrors" to meet unrealistic revenue projections.
  • The actions come as Qwest is involved in a bidding war with Verizon Communications for control of MCI.
  • The SEC has already settled with eight mid-level executives for their activities under Nacchio, and four executives faced criminal charges.
  • Qwest's stock fell as low as $1.11, costing shareholders about $89 billion in market value.

Statistics:

  • $3 billion: The alleged amount of accounting fraud orchestrated by Qwest executives.
  • $216 million: The amount reaped by Nacchio from the scheme.
  • $84 million: The total profits taken in by the other six executives.
  • $2.5 billion: The revenues removed from Qwest's results in 2000 and 2001 after Nacchio's departure.
  • $64: The price per share of Qwest's stock in 2000.
  • $1.11: The lowest price per share of Qwest's stock after the scandal.
  • $89 billion: The market value lost by shareholders due to the scandal.
  • 2002: The year Nacchio was forced to resign from Qwest.

Sources:

  • "SEC Sues Executives of Qwest for $3 Billion in Accounting Fraud" by The New York Times (no date given)
  • "Qwest Sued by SEC Over $3 Billion Accounting Scandal" by Bloomberg (no date given)

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