- The Washington Times - Tuesday, February 25, 2003

WASHINGTON, Feb. 25 (UPI) — Four former executives of Qwest Communications have been indicted for fraudulently inflating profits, the Justice Department said Tuesday.

The 12-count indictment was returned in Denver.

Attorney General John Ashcroft, Deputy Attorney General Larry Thompson — chairman of the president's Corporate Fraud Task Force — and U.S. Attorney John W. Suthers of the District of Colorado made the announcement in Washington.

The ex-executives charged in the indictment are Grant Graham, 37, of Evergreen, Colo., who was the chief financial officer for Qwest's Global Business Unit; Thomas Hall, 51, of Englewood, Colo., who was a senior vice president in the Government and Educational Solutions Group within Qwest's Global Business Unit; John Walker, 41, of Littleton, Colo., who was a vice president in the Government and Educational Solutions Group; and Bryan Treadway, 37, of Atlanta, who was an assistant controller.

The indictment alleges that the defendants set up a scheme to falsely recognize more than $33 million of additional revenue for the second quarter of 2001, in which Qwest was experiencing weak sales.

The defendants allegedly sought to fill a gap in revenue by the company's Global Business Unit by immediately reporting millions of dollars from a purchase order with the Arizona School Facilities Board.

The reporting of the profits was in violation of Securities and Exchange Commission rules, according to the indictment.

The indictment also alleges that the defendants sought to hide their actions by falsifying documents and engaging in securities and mail fraud.

Arrest warrants were issued for the four defendants and they have been given 48 hours to surrender to the U.S. Marshals Service, the Justice Department said.

Qwest is a publicly held company whose shares are traded on the New York Stock Exchange, and it was obligated to file quarterly reports with the SEC.

According to the indictment, during the second quarter of 2001, the Global Business Unit at Qwest was given a revenue target of $1.825 billion by Qwest management.

This target was to be met through a combination of recurring revenue and non-recurring revenue, meaning that Qwest's sales teams needed to find and close new transactions in order for the company to reach its revenue targets.

In January 2001, Qwest had entered into a purchase order with the Arizona School Facilities Board to design and implement a statewide school computer network.

According to the indictment, the defendants arranged for Qwest to enter into a "bill and hold" transaction in which the seller sells equipment to a buyer, bills the customer and then holds the merchandise for later delivery.

The indictment alleges that the defendants violated strict SEC requirements on "bill and hold" transactions by immediately recognizing the revenue.

The defendants knew their transactions would meet none of the SEC's requirements, the indictment said, so they filed false documents and took other steps to hide their actions.

All four defendants are charged with conspiracy to commit an offense against the United States, which carries a penalty of no more than five years in prison and a $250,000 fine; securities fraud/false misleading statements, carrying a penalty of not more than 10 years in prison and a $1 million fine; securities fraud/manipulative and deceptive devices, carrying a penalty of up to 10 years in federal prison and a fine of up to $250,000; making false statements, carrying a penalty of up to five years in prison and a $250,000 fine; and wire fraud affecting a financial institution, carrying a penalty of up to 10 years in prison or a fine of up to $1 million.

The case was investigated by the FBI and the SEC.

In addition to Tuesday's criminal charges, the SEC has filed civil fraud charges against eight current and former officers and employees of Qwest Communications International Inc., alleging they inflated company revenues by approximately $144 million in 2000 and 2001 to meet earnings projections and revenue expectations.

The commission's lawsuit, filed in U.S. District Court in Denver, seeks anti-fraud injunctions, civil penalties, disgorgement of ill-gotten gains, and for certain defendants, a permanent bar from service as an officer or a director of a public company.

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