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Former Qwest Chief May Face Charges

SEC Prepares Case Against Nacchio in Connection With Revenue-Inflation Scheme

By Carrie Johnson
Washington Post Staff Writer
Saturday, March 12, 2005; Page E03

Securities regulators have voted to file civil charges against former Qwest Communications International Inc. chief executive Joseph P. Nacchio in connection with a scheme to inflate revenue at the telecommunications giant by billions of dollars, according to two people familiar with the case.

The Securities and Exchange Commission's enforcement unit could charge Nacchio and several other former officials at the Denver long-distance phone company as soon as next week, the sources said. They spoke on condition of anonymity because deliberations by the SEC's five members are private and because the executives still could settle the charges in the next several days.

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Last year, Qwest agreed to pay $250 million to settle allegations that the company boosted profits by using fraudulent deals to swap long-distance network capacity with rivals in the telecommunications industry. The company did not admit wrongdoing as part of the settlement.

In the October 2004 case against Qwest, the SEC described the extensive use of accounting tricks at the company. Top managers pressured subordinates to meet "unrealistic" Wall Street earnings targets, launching the fraud, court papers said.

Nacchio and other corporate leaders at Qwest were not mentioned by name in the agency's complaint, but they were referenced by title. Once a high-profile spokesman for the telecommunications sector, Nacchio left the company under pressure in June 2002.

Marcia Horowitz, a spokeswoman for Nacchio, said yesterday that if regulators file a lawsuit against him, "Mr. Nacchio will defend against it vigorously, and he looks forward to being vindicated."

Paul Grand, a lawyer for former Qwest chief operating officer Afshin Mohebbi, who also has been targeted by securities regulators, said, "My client did absolutely nothing wrong. We will defend with all the power and fight we can, and ultimately he will be vindicated."

Two former finance chiefs and a vice president who put into place several of the suspect swap deals also could be sued by the SEC as soon as next week, the sources said. The SEC move was reported by the Wall Street Journal in yesterday's editions.

Federal prosecutors in Denver continue to investigate the conduct of Qwest's former executives, said Jeff Dorschner, a spokesman for the U.S. attorney in Colorado.

Last month, prosecutors indicted former executive vice president Marc B. Weisberg on wire fraud and money-laundering charges for allegedly seeking investment opportunities for himself and others at the expense of Qwest shareholders. Weisberg allegedly realized $2.9 million from the secret deals. He has denied the charges.

Two other Qwest employees pleaded guilty and agreed to cooperate with investigators last year. Two more were acquitted after an extended jury trial ended in April 2004.

Qwest's stock price fell from $55 to less than $2 a share after the fraud surfaced in 2002. Shares closed yesterday at $3.85, up 1 cent. The company has restated earnings by nearly $2.5 billion for 2001 and 2002.

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