Maybe white collar workers (CEOs) will begin to pay

Here's another one.

SEC Sues Ex-Qwest CEO Nacchio, 10 Others

1 hour, 27 minutes ago Business - Reuters


By Robert Boczkiewicz

DENVER, Colorado (Reuters) - The U.S. Securities and Exchange Commission (news - web sites) on Tuesday sued former Qwest Communications International Inc. (NYSE:Q - news) Chief Executive Joseph Nacchio and 10 other former executives, accusing them of perpetrating a massive financial fraud on investors.


The SEC simultaneously settled with four of the former executives named in the lawsuits, filed in Denver federal court and accused the Qwest management team of filing false financial statements that hid the true source of the company's revenues between April 1999 and March 2002.


The Denver-based phone company allegedly fraudulently reported about $3 billion in revenue while excluding $231 million in expenses, and also facilitated the company's June 2000 merger with US West Inc., the lawsuits said.


Named with Nacchio in the still-pending lawsuit were former chief financial officers Robert Woodruff and Robin Szilega; former chief operating officer Afshin Mohebbi; former finance executives James Kozlowski and Frank Noyes; and Gregory Casey, former executive vice president of Qwest's wholesale business.


Nacchio's attorney, Charles Stillman, said his client "did nothing wrong and did not instruct anyone else to do anything wrong during his tenure at Qwest, and he looks forward to being vindicated."


In a statement, Stillman said Nacchio cooperated extensively with the SEC throughout the investigation and believes the agency "unfairly seeks to impute to (him) and others at Qwest responsibility for the results of a widespread industry downturn in a deteriorating economy."


Kozlowski's attorney, Kevin D. Evans, called the SEC claims "as sensational as they are unsupportable."


"The SEC has overreached in the extreme by including Mr. Kozlowski in this case," Evans said in a statement. "We look forward to demonstrating that Mr. Kozlowski is not liable for the baseless acusations against him."


Woodruff's attorney had no comment on the case. Lawyers for Szilega, Mohebbi and Noyes could not be reached for comment.


Qwest spokesman Bob Toevs distanced the company from the latest act in the unfolding legal drama. "Any allegations that concern conduct at Qwest relate to events that took place many years ago," he said. "The company is focused on its future."


The lawsuit focused on Nacchio and the company's two former CFOs accuses the former executives of directing and implementing the scheme, which it said involved filing false financial statements and deceiving auditors.


The SEC alleges the "massive fraud" sprung directly from aggressive and rigid targets for earnings and revenue set by Nacchio and the two CFOs, "which they constantly touted to the investing public and Wall Street."


Nacchio created a "culture of fear" by placing "extreme pressure" on subordinate Qwest executives, insisting they meet the financial targets at all costs, the suit said.


Qwest met the targets by repeatedly booking revenue from one-time sales of equipment and assets while falsely claiming the revenue was recurring, the lawsuits said.


Qwest eventually had to restate more than $2 billion in revenue for 2000 and 2001.


The four settled lawsuits released on Tuesday were against former senior vice presidents William Eveleth and Roger Hoaglund and ex-controllers Mark Schumacher and Brian Treadway. Treadway was acquitted last April of criminal charges related to his work at Qwest.


Hoaglund's lawyer said his client admitted to no wrongdoing but agreed to settle "because he wanted to get on with his life." Eveleth's lawyer had no comment.


Lawyers for Treadway and Schumacher could not be reached.

Qwest agreed in October to pay more than $250 million to settle financial fraud charges. It also agreed to hire a permanent chief compliance officer to ensure the company obeys securities laws.

In February, federal prosecutors charged Marc Weisberg, a former executive vice president of Qwest, with wire fraud and money laundering for allegedly using his position at Qwest to enrich himself personally.

At least five former Qwest executives have faced criminal charges in recent years, and prosecutors have said their probe of the company is ongoing.

Qwest shares closed down 5 cents or 1.3 percent on Tuesday at $3.86 on the New York Stock Exchange (news - web sites).

Ex-Chief of WorldCom Is Found Guilty in $11 Billion Fraud
By KEN BELSON

Published: March 16, 2005


Bernard J. Ebbers, the former chief executive of WorldCom, was found guilty yesterday in federal court of orchestrating a record $11 billion fraud that came to symbolize the telecommunications bubble of the 1990's and the excesses that were uncovered in its aftermath.

The seven women and five men in the jury reached a verdict after deliberating for about 40 hours over eight days. Mr. Ebbers was convicted of securities fraud, conspiracy and seven counts of filing false reports with regulators. Each count carries a sentence of 5 or 10 years.




Mr. Ebbers and WorldCom, through the acquisition of dozens of phone companies, helped to create the rush for telecommunications stocks in the 1990's. They were at the center of a swirl of scandals that cast doubt on corporate accounting methods, the role of Wall Street analysts, and investment bankers who sold stocks and bonds to investors.

WorldCom's phantom growth caused once-mighty telecommunications companies like AT&T to cut prices and slash costs in the crippling race to keep up, from which they never fully recovered. And MCI, which WorldCom acquired with its lofty stock in 1998, was tainted by WorldCom's bankruptcy, was forced to let thousands of workers go and may soon be acquired.

Mr. Ebbers, 63, is the most prominent executive yet to be convicted in a corporate fraud case, but other executives face similar charges. Richard M. Scrushy of HealthSouth, who is also accused of fraud, is on trial now in Birmingham, Ala. Kenneth L. Lay, the former chairman of Enron, is to be tried next year on fraud and other charges, as is Jeffrey K. Skilling, Enron's former chief executive.

In Federal District Court in Manhattan yesterday, Mr. Ebbers sat motionless as the jury foreman, Theodora Evans, read the decision. His hands clasped in front of him, Mr. Ebbers was ashen-faced by the time the drumbeat of nine guilty verdicts was over. His wife, Kristie, seated in the first row behind him, started to weep after the second verdict was read. When Count 5 was read, her daughter, Carley, huddled closer.

The result in Mr. Ebbers's case, legal experts say, may be an indication that juries are not easily persuaded by claims from executives like Mr. Ebbers that they were unaware of securities and accounting crimes committed on their watch.

Mr. Ebbers's testimony that he did not know about the fraud, according to one juror, was unconvincing.

"A lot of his own testimony pretty much did it," said the juror, who insisted on anonymity.

Yesterday's verdict adds a somber postscript to the outsized story of Mr. Ebbers's rise and fall. story. From a modest background and with little schooling in technology or accounting, he turned a tiny reseller of long-distance phone services in Mississippi into an global telecommunications titan. Once worth more than $1 billion, most of it in WorldCom stock, Mr. Ebbers was hailed for his vision and savvy during good times and accused of greed and deceit during bad times.

Despite a deluge of documents and weeks of testimony about intricate accounting procedures, the case essentially came down to Mr. Ebbers's word against that of Scott D. Sullivan, WorldCom's former chief financial officer, who said he was directed by Mr. Ebbers to doctor WorldCom's financial books to hide the company's slowing sales. Mr. Sullivan has pleaded guilty to his role in the fraud and could be sentenced to 25 years in prison.

After the jurors, judge and prosecutors left the courtroom, several dozen reporters waited in near-silence as Mr. Ebbers and his lawyers put on their coats to leave. Mr. Ebbers sipped water and hugged his wife, who patted him on the back.

Mr. Ebbers left the courthouse holding his wife's hand and his stepdaughter's arm. They made no public comments before they hailed a cab and sped away.

Sentencing for Mr. Ebbers is scheduled on June 13. Until then, he is free on bail.

Barbara S. Jones, the judge in the case, will have broad discretion in determining Mr. Ebbers's sentence. According to federal sentencing guidelines, which Judge Jones is supposed to consider, Mr. Ebbers faces 30 years to life in prison. She could, however, lump the terms for each of the counts together as well as consider his age, health and his role in the fraud in making her judgment.

Reid H. Weingarten, Mr. Ebbers's lawyer, said he planned to appeal the verdict, saying the jury should have heard from three former WorldCom executives who had intimate knowledge of the company's accounts and Mr. Ebbers's role in managing them.

The executives refused to testify without immunity; the defense filed three motions for protection for them, but those motions were denied.