Qwest Communications International Inc., whose accounting practices have been under investigation by federal regulators, said Wednesday that federal prosecutors have begun a criminal investigation of the former Baby Bell company. Its slim share price sank about 32 percent in trading.
In a news release, Qwest said the U. S. attorney’s office in Denver told the company Tuesday afternoon that it had begun the investigation but did not disclose the subject matter. Qwest said it plans to fully cooperate.
Jeff Dorschner, a spokesman for U.S. Attorney John Suthers, confirmed Wednesday that an investigation is under way but would not say when it started or what is being investigated.
Reports have indicated that one of the practices being examined is a process called “capacity swaps,” whereby Qwest bought telephonic capacity on another company’s system and booked it as a capital expense, which is only recorded slowly over several years, while selling the same amount of capacity to the other firm, and booking that immediately as revenue.
Word of the investigation comes at a time when the federal government is pledging a thorough crackdown on corporate misdeeds after a series of scandals at major companies have eroded investor confidence in Wall Street.
Last week, the company heatedly denied a report in The Wall Street Journal that Qwest was being investigated by the U.S. attorney and the Federal Bureau of Investigation.
Drake S. Tempest, Qwest executive vice president and general counsel, said it was “outrageous” that Qwest would hear about such an investigation in news reports.
Analyst Drake Johnstone of Davenport & Co., said last week he would not be surprised by an investigation. “I have had an issue for the past year about the behavior of Qwest management,” he said.
In the past year, Qwest has faced a Securities and Exchange Commission inquiry into its accounting practices, a downgrade of its credit rating to junk status and a sinking stock price. Longtime chief executive officer Joseph P. Nacchio resigned last month.
Qwest, which was once part at the Bell System under AT&T Corp., is the local phone company for 14 states extending from Minnesota west to Washington and southwest to Arizona and New Mexico.