Four former executives of Qwest Communications were indicted for fraud, Attorney General John Ashcroft announced Tuesday.
The four were indicted on 12 counts by a federal grand jury in Denver. They are accused of devising a scheme to create more than $33 million in revenue by wrongly reporting a purchase order with the Arizona School Facilities Board, in violation of Security and Exchange Commission rules.
The government says Qwest sold equipment including materials to create Internet access to the statewide school computer network, billed the customer and held the merchandise for later delivery. In violation of SEC rules, they booked the revenue before the merchandise was delivered.
The company also knowingly filed false documents to hide its actions, the Justice Department says.
“As we continue our efforts to battle corporate fraud, our message is clear. We will protect the integrity of our markets by punishing those who falsify financial information out of sheer greed,” Ashcroft said in a statement.
Arrest warrants were issued for Grant Graham of Evergreen, Colo., former chief financial officer for Qwest’s global business unit; Thomas Hall of Englewood, Colo., former senior vice president in the global business unit; John Walker of Littleton, Colo., a former vice president in the unit; and Bryan Treadway of Atlanta, former assistant controller.
The Justice Department said Tuesday that its investigation was continuing.
The charges are the first in the federal probe of Qwest, the USA’s No. 4 local telephone company.
So far, Qwest’s own internal probe has revealed $2.2 billion in improperly recorded revenue in 2000 and 2001. The company plans to restate results for those years, pending an audit by KPMG.
Qwest is one of several former highflying telecom giants along with WorldCom and Global Crossing to become embroiled in financial scandals that shattered investor confidence last year. All three companies were the subject of congressional hearings at which top executives and midlevel officers were grilled by lawmakers.
It is common for prosecutors to target lower-level managers first, hoping to work their way up to higher decision-makers.
The Enron Task Force has used criminal complaints as a first step in its legal actions against former Enron executives. The complaints allow prosecutors to show their targets and potential targets how strong their hand is, without committing prosecutors to a specific course of action.
The use of a criminal complaint against three British bankers last summer is believed to have helped the Enron Task Force persuade former Enron executive Michael Kopper to plead guilty in August and cooperate in the prosecutors’ investigation of higher-ups at Enron, including former chief financial officer Andrew Fastow.