California’s giant teacher pension fund has reached a nearly $47 million settlement with Qwest Communications over a lawsuit claiming that the Denver-based telephone company defrauded the fund of $150 million.
The settlement, made public Wednesday, calls for Qwest, its accountants and banks to pay the pension fund $45 million. Former Chief Executive Officer Joseph Nacchio must pay $1.5 million.
The deal was reached in December but had been under seal in San Francisco County Superior Court. It was released after The Associated Press filed a California Public Records Act request with the pension fund.
The California State Teachers’ Retirement System took the losses when Qwest Communications International Inc.’s stock collapsed in 2002 amid allegations of accounting fraud. In addition to the company, the pension fund’s lawsuit also named Qwest’s former top executives and several financial services companies.
Nacchio is scheduled to go on trial in March in Denver on charges that he sold $101 million worth of Qwest stock based on inside knowledge that the company would not meet revenue targets. He has pleaded not guilty to 42 charges of insider trading.
Nacchio also is one of several former Qwest executives accused by the Securities and Exchange Commission in a civil case alleging they orchestrated a financial fraud that forced the company to restate billions of dollars in revenue. That case is pending.
The SEC in 2002 accused Qwest’s former managers of massive accounting fraud. Qwest later paid $250 million to investors to settle the claims without admitting or denying the allegations.
“We’re pleased to have the matter behind us,” Qwest spokesman Bob Toevs said.
The deal gives the teacher pension fund, commonly referred to as CalSTRS, about 30 times more than it would have recovered if it had taken part in the class-action lawsuit, chief executive Jack Ehnes said.
“We pursued this case not only to recover losses to the fund that directly affect the financial futures of our members, but to reinforce our commitment to good corporate governance for the benefit of all shareholders,” Ehnes said in a statement.
With $157.8 billion in assets, the teacher pension fund is the second-largest in the nation, surpassed only by the California Public Employees’ Retirement System, fund spokeswoman Brenna Neuharth said. It provides benefits to about 800,000 retired and current teachers.
Nacchio’s attorney, Herbert J. Stern, did not immediately return a telephone message left after business hours Wednesday at his New Jersey office.
CalSTRS claimed it invested in Qwest securities based on statements by the banking and financial firms that were false, incomplete and “materially misleading.”
The lawsuit also alleged that Nacchio and Qwest founder Philip F. Anschutz falsely represented the company’s financial situation. Qwest’s bankers, Salomon Smith Barney Inc., Citigroup Inc., Lehman Brothers Inc., Bank of America Corp., JP Morgan Chase & Co., and Merrill Lynch & Co., also were part of the settlement.
CalSTRS’s lawsuit charged that the financial firms sold Qwest securities, while at the same time “creating and financing many of the transactions” that gave the impression Qwest was a successful company.
Qwest provides local and long-distance telephone service in 14 states. Shares of Qwest fell 6 cents Wednesday to close at $8.15 on the New York Stock Exchange.