- The Washington Times - Wednesday, September 25, 2002

From combined dispatches
A top official of Qwest Communications International Inc. said yesterday that swaps of network capacity were done under the guidance of its accountant, Arthur Andersen advice that turned out to be mistaken.
Robin Szeliga, the former chief financial officer at Qwest, who is now in charge of procurement and real estate for the company, said a team was supposed to ensure the swaps conformed to generally accepted accounting principles.
"I was not personally involved in reviewing the detailed terms and conditions of each of the IRU transactions," she said in written testimony to the House Energy and Commerce subcommittee on investigations. An IRU, or indefeasible right of use, is the technical name for a network-capacity swap.
"In fact, as early as 1999, Arthur Andersen established guidance as to the application of accounting principles for IRU transactions," she said.
The panel is holding a hearing to probe whether such swaps by Qwest and others artificially boosted revenue.
Global Crossing Ltd. used swaps of network capacity with Qwest and others to boost sales and meet Wall Street forecasts, former Global Crossing employees told lawmakers.
Roy Olofson, Global Crossing's former vice president of finance, said he was fired after challenging the deals, in which Global Crossing traded assets with rivals and booked it as revenue. He said former Chief Executive Officer Tom Casey told analysts on two conference calls last year that Global Crossing hadn't engaged in swaps in the previous quarter.
Mr. Olofson and other witnesses described an industry focused on meeting aggressive revenue targets even as demand for phone and data services slowed in late 2000 and 2001. Qwest and Global Crossing, which filed for bankruptcy in January, also are the subjects of accounting probes by the Securities and Exchange Commission and the Justice Department.
"The winks and the nods, the side agreements, written and oral, indicate these companies were engaged in deception and fraud," House Energy and Commerce Committee Chairman Billy Tauzin said.
"We have evidence that Global Crossing and Qwest executives pursued sham transactions," the Louisiana Republican said.
Yesterday's hearing by the panel's investigations subcommittee is the first of two, in which lawmakers will question current and former employees of the companies. The committee will weigh the need for legislation to prevent abuses or whether the Justice Department should bring criminal charges.
Tisha Kresler, a Global Crossing spokeswoman, declined to comment on the hearing.
Qwest spokesman Steve Hammack said the company is cooperating with the committee. He wouldn't comment further. Spokesman Bill Myers said Qwest hasn't ruled out the possibility that fraud was committed.
Internal e-mail released by the panel reveals concerns about Qwest business practices being focused on meeting analyst expectations rather than following accounting rules.
"There are well-known consequences for not making the numbers, but no clear consequences for cutting corners," Peter Hellman, a Qwest board member, wrote in an October 2001 e-mail message.
Global Crossing's sales staff felt pressure to close deals quickly to meet aggressive revenue forecasts, according to witnesses and internal documents the committee released.
"It was really too aggressive," said Patrick Joggerst, Global Crossing's former president of carrier sales. "We were on a trajectory that would have exceeded even what I thought was already an exorbitant target."
In the second quarter of 2001, 13 of 18 swaps at Global Crossing involved exchanges of network assets with similar values and shouldn't have been booked as sales, Mr. Olofson said.
"There was a general sense of uneasiness about these swap transactions and in particular about a transaction with 360 networks," Mr. Olofson told the subcommittee.
Under the 360 networks transaction, Bermuda-based Global Crossing booked $150 million in revenue at the end of the quarter, even though the company "had not received a penny in cash," Mr. Olofson said. He learned later that only $50 million changed hands.
Qwest said two days ago it would wipe $950 million in 2000 and 2001 sales off its books from capacity swaps. Restatements related to capacity sales may reach $1.48 billion, the Denver- based company said. It also has admitted errors in accounting for equipment sales and some expenses.

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