One of Corporate America’s hottest criminal probes is gaining steam, not amid Manhattan’s skyscrapers, but in the shadows of the Rocky Mountains.
U.S. Attorney John Suthers, along with top assistant and longtime pal Bill Leone, have indicted four former managers of Qwest Communications, the Denver-based phone company that plans to restate $2.2 billion in revenue because of bad accounting.
From their office just a few blocks from Qwest headquarters, the duo indicate that the “multiphased” probe is far from over — echoing similar comments from Attorney General John Ashcroft when the indictments came down Feb. 25. Suthers declined to talk specifics, saying the investigation is divided into “various areas” of alleged misconduct.
By pressing lower-level targets, prosecutors hope to climb Qwest’s corporate ladder, people close to the case say. That’s also the case in other investigations spurred by the Bush administration to get tough on corporate crime, including WorldCom’s.
What happens in the probe of Qwest, which provides local and long-distance phone service in Washington state, could have broad implications for its 50,000 employees and tens of thousands of retirees. While they want fraud exposed, they also fret that Qwest’s stock price is $3.83. That’s off about 93 percent from mid-2000, when Qwest acquired phone company US West and promised big growth.
More charges likely
The Qwest indictments, so far, stem from a single 2001 deal in which Qwest allegedly improperly booked $33.6 million from a sale to Arizona schools so it could meet Wall Street’s earnings expectations. The defendants, accused of falsifying documents to get the deal done, have pleaded not guilty.
The Securities and Exchange Commission also filed civil fraud charges against the four midlevel executives, three other former executives and one current one. So far, there have been no charges against Qwest’s top officials.
But people close to the investigation say more criminal charges are likely to stem from several secret side deals some Qwest executives made with other telecom carriers. When these carriers bought capacity from Qwest, the deals specified certain asset sales. That meant Qwest could book the revenue upfront for the sale.
But the side deals gave Qwest’s customers flexibility in what they could buy. That meant the revenue should not have been booked upfront, accounting rules say. Some of the side deals were made public in congressional hearings last fall that questioned whether carriers used sham deals to inflate revenue.
Qwest spokesman Chris Hardman declined comment on the investigation except to say, “We continue with efforts to cooperate with the government.” The government has praised its assistance.
Prosecutors are well aware of just how much the Qwest case means to Colorado, where it is one of the top employers.
” Qwest is a very important company for this community, so it means we have to be especially vigilant to make sure that we do what’s right,” Leone says.
While the U.S. Attorney in Manhattan handles cases against WorldCom, Adelphia and ImClone, Suthers gripped Qwest. The Justice Department is “happy with the progress we’ve made and the expertise we’ve brought,” he says. “It’s harder to get into this office than it is Harvard Law School.”
Indeed, the Colorado District, with about 70 attorneys, has some of the USA’s top talent, Leone says. Among recent cases, it helped get a terror suspect detained, nailed the starter of Colorado’s largest wildfire and broke up a bogus bond scam.
Suthers and Leone, both native Coloradans, took different paths to their current gigs.
Suthers moved between public and private sectors. He was elected District Attorney in Colorado Springs, serving from 1988 to 1997 and he co-wrote a book on consumer fraud and white-collar crime, “Fraud and Deceit.” “He’s the first one in the office and the last one to leave,” says Jeanne Smith, Colorado Springs DA.
Twice, Suthers worked at a private firm. After failing to get elected as state attorney general in 1998, he was appointed to run Colorado’s Department of Corrections. After Bush’s election, Suthers was named U.S. Attorney. He started the week before the Sept. 11 attacks.
He’s considered by some Republicans as a leader with a future. He is well connected. His office is dotted with photos of him with President Bush, Colin Powell, Dick Cheney, Gerald Ford, Ashcroft, Janet Reno and others. In fact, a past campaign contribution he got from Qwest founder Philip Anschutz prompted some calls for him to step aside from the Qwest probe. Suthers’ bosses decided there was no conflict.
He won’t speculate on his future. Between the wars on terrorism and fraud, “I can’t imagine anything more interesting,” he says.
Suthers tapped Leone, a veteran private litigator who worked with Suthers briefly in the mid-1980s. They grew friendly during Saturday basketball games. Leone was “tired of making big dollars” and was interested in public service, Suthers says.
In private practice, “You know what side you have to take,” Leone says. “The beauty of this job is that it’s a side you think is the right side.”
Leone, with experience in securities and accounting lawsuits, has a knack for managing complex cases, colleagues say. “He’s very creative and pretty aggressive,” says Tucker Trautman of Dorsey & Whitney, who worked with Leone. “He tends to see a side of an issue that many people don’t at first glance.”
Those skills are why Suthers wanted Leone on the Qwest probe, which is such a priority that they talk about it daily. While Leone says he’s worked on cases as complex, “They weren’t on the front page,” Suthers jokes.
Qwest could be a career boost for both. Leone declined consideration for a federal judgeship to stay on Qwest. Even Suthers says it’s “the biggest white-collar case that I’ve been around.”