The Securities and Exchange Commission is considering civil charges against more than 20 former executives and employees of Qwest Communications International Inc., in yet another chapter of the telecommunications company’s woes, people familiar with the investigation told The Wall Street Journal.
The SEC and prosecutors from the Justice Department are focusing the current phase of their investigation into Qwest on two issues, these people said. One is executives’ purchases of low-cost shares, prior to their initial public offering, from telecom-gear suppliers to Qwest. The other is the use of secret side agreements by Qwest sales teams, which allegedly circumvented accounting rules and helped boost revenue. It isn’t known whether any current Qwest employees are part of the investigation.
It appears that the case would be the first government crackdown on alleged misuse of such share distributions, which sometimes were dubbed “friends and family” allocations. During the late 1990s and early 2000, it was common for many young technology companies to allow executives of key clients to purchase shares in highly coveted IPOs. These shares often doubled or tripled in their first day of trading.
People familiar with the matter said that investigators also are probing how Qwest’s board oversaw the awarding of IPO shares from suppliers. Current Chief Executive Richard Notebaert barred such practices in late 2002. Under former CEO Joseph Nacchio, employees could make the investments as long as they received approval from Qwest’s legal department. If an employee had an interest in another company, the previous Qwest policy said that employee could not be “the sole decision maker” regarding a business decision affecting the outside firm.
A Qwest spokesman said that the company was continuing to cooperate with investigators. An SEC spokesman declined to comment, as did a spokesman for the Justice Department.