Qwest Communications’ officers and bankers, including Salomon Smith Barney, knew the fourth-largest U.S. local-telephone company had engaged in accounting fraud since 1999, a lawsuit claims.
The California State Teachers Retirement System, which has lost about $150 million in Qwest stock and bonds, claims that Qwest founder Philip Anschutz, former Qwest Chief Executive Joseph Nacchio, Citigroup’s Salomon Smith Barney and others engaged in a scheme “to make Qwest appear more successful than it actually was.”
Congressional lawmakers, the Justice Department and the Securities and Exchange Commission are investigating the Denver-based company’s accounting. Qwest has said it overstated 2000 and 2001 revenue by $1.86 billion and hasn’t yet filed second- or third-quarter financial statements with the SEC.
The scheme “to falsely inflate Qwest’s revenues and decrease its expenses” flourished “because of the active participation and advice of all defendants,” according to the 91-page suit filed in San Francisco Superior Court that seeks unspecified monetary damages.
“Our policy is not to comment on pending litigation,” said Qwest spokesman Steve Hammack.
“Joe Nacchio always acted in the best interest of Qwest employees and its shareholders,” said Nacchio’s lawyer, Charles Stillman. “This lawsuit has no merit and he will vigorously contest it.”
A spokesman for Anschutz wasn’t immediately available for comment.
The California State Teachers Retirement System, or CalSTRS, also sued underwriters including J.P. Morgan Chase & Co. and Merrill Lynch & Co. The banks loaned Qwest millions of dollars even though a review of the company’s books should have revealed the revenue overstatement, the suit said.
The pension fund singled out Salomon for its “close relationship” with Qwest, which resulted in Salomon’s advice on 18 banking deals that led to $30 million in fees.