By Associated
updated 10/21/2004 2:39:30 PM ET 2004-10-21T18:39:30

The regional telecommunications company Qwest agreed Thursday to pay $250 million to settle allegations that it improperly booked $3.8 billion in revenue and that senior managers sought to conceal it.

The Securities and Exchange Commission filed the settlement agreement in federal court in Denver, capping a 2½-year investigation. Qwest agreed to the settlement without admitting or denying the allegations.

In the scathing complaint, the SEC accused Qwest senior managers of approving and directing a scheme to book one-time revenue from the sale or trade of fiber-optic capacity as recurring revenue from operations.

Qwest became so dependent on the tactic that employees began comparing the company to a drug addict and the transactions as the company’s “heroin,” the complaint said.

CEO Richard C. Notebaert said in a statement that company officials “are pleased to conclude this matter,” which will allow them to focus on serving customers.

Qwest was launched in 1988 by billionaire investor Philip Anschutz as a fiber-optic network company. In 2000, it got into the local phone business with the $38 billion takeover of US West, the main carrier in 14 Western and Midwestern states since the 1984 breakup of AT&T.

Federal regulators began investigating Qwest in 2002 for allegedly inflating revenue through fraudulent transactions with other telecommunications companies. Since then, the company restated financial results for 2001 and 2002 to lower revenue by about $2.5 billion.

The complaint also says Qwest booked anticipated revenue long before it materialized, that its former phone book division delayed or moved up publication dates to artificially inflate revenue figures, and that at least one senior Qwest employee pressured vendors to allow Qwest executives to invest in their initial public stock offerings.

The complaint is harshly critical of senior Qwest managers but identifies them only by title and does not mention them by name.

The SEC has sued a number of former and current employees. The Wall Street Journal reported last month that the SEC has notified former Qwest CEO Joseph Nacchio that its staff would recommend civil charges be filed.

Nacchio, who left the company in 2002, has denied wrongdoing. A spokesman said he had no immediate comment Thursday. Nacchio has said he would be vindicated if any civil charges are brought against him.

About a dozen former Qwest executives either have settled allegations or have been targeted in civil or criminal cases. In February 2003, Attorney General John Ashcroft announced indictments against four former Qwest officials accused of a scheme to inflate revenues.

Two of them pleaded guilty in plea agreements with the government, and two were acquitted.

Copyright 2004 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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