Qwest under criminal investigation
Advertiser News Services
DENVER — Qwest Communications International Inc., whose accounting practices have been under investigation by federal regulators, said yesterday that federal prosecutors have begun a criminal investigation of the company.
With that word, 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 yesterday 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.
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.
Qwest, once part of the Bell System under AT&T, is the local phone company for 14 states extending from Minnesota west to Washington and southwest to Arizona and New Mexico.
Qwest shares lost 83 cents, or 31.9 percent, to close yesterday at $1.77 on the New York Stock Exchange.
Word of the investigation comes at a time when the federal government is pledging to crack down on corporate misdeeds after a series of scandals at major companies have eroded investor confidence in Wall Street.
Other companies facing legal scrutiny:
• Adelphia Communications Corp. in April said it is under investigation by the U.S. Securities and Investigation Commission for backing $2.3 billion in loans to former Chairman John Rigas and his son Timothy, who was chief financial officer. In May, the cable-television company said it is being investigated by U.S. prosecutors and grand juries in New York and Pennsylvania. Adelphia filed Chapter 11 bankruptcy protection June 25.
• Enron Corp. in January became the subject of a Justice Department task force investigation into the events that led to the largest-ever U.S. bankruptcy. The department expanded its criminal investigation into the collapse of the energy company later that month by looking into the shredding of documents. Enron also faces shareholder lawsuits, an SEC investigation, congressional hearings and a Labor Department probe.
• Global Crossing Ltd.,a fiber-optic network operator, in February said the SEC began a formal investigation into the company's accounting practices. The FBI is also investigating accounting practices. U.S. attorney offices in Jackson, Miss., and the Southern District of New York are also involved.
• ImClone Systems Inc. said in January that the SEC and the Justice Department are investigating the biotechnology company, increasing scrutiny into whether the company misled investors about prospects for its cancer drug Erbitux. ImClone is also the focus of a House investigation that is probing the handling of the company's cancer-drug application.
• WorldCom Inc., the No. 2 U.S. long-distance telephone company, said last month it hid $3.9 billion in costs. The Justice Department may open a criminal investigation into the company's accounting practices. The SEC is also examining the company's accounting as well as a loan to former Chief Executive Bernard Ebbers, who was ousted in April.
Associated Press and Bloomberg News reports were included in this story.
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