Financial Fraud- Qwest Communications

Topics: Fraud, Qwest, Joseph Nacchio Pages: 10 (6773 words) Published: October 22, 2014

Financial Fraud- Qwest Communications

Introduction
In the late 90’s, early 2000’s, Qwest Communications International Inc. (Qwest) was a rapidly growing telecommunications company that provided global internet and telephone services. At their pinnacle, Qwest was one of their industry’s top leaders, reporting revenues of $16.7 billion in 2001 (Anonymous, 2013). Through continued expansion and acquisitions of other large telecommunications companies, it seemed things were only headed in a positive direction for Qwest. Their technology and advancement were consistently outpacing the competition, and they were dominating the marketplace. Then things took a turn for the worse in 2002, with the discovery that the President and CEO, in conjunction with several other top executives, were committing several types of financial fraud, including insider trading. Unraveling the web of lies and deceit uncovered billions of dollars of falsely reported revenue, and ultimately led to the tarnished brand image of Qwest, millions of dollars lost by investors and hundreds of employee out of work. According to sources, Qwest began in 1988 as SP Telecom, a subsidiary of Southern Pacific Transportation Co. located in San Francisco, California. Southern Pacific Transportation was purchased and owned by billionaire oil tycoon, Philip Anschutz. In 1995, SP Telecom assumed the name Qwest Communications Corp. and moved company headquarters to Denver, Colorado. The company was growing quickly, and Qwest soon launched an Initial Public Offering (IPO) and became publicly traded as Qwest Communications International Inc. in 1997. The organization sold 13.5 million shares for $297 million, though Anschutz remained primary shareholder, retaining 86 percent of the company. At this time Joseph Nacchio, former head of Consumer Services at AT&T, became Qwest's new President and CEO. Qwest soon became a powerhouse, acquiring smaller companies at a rapid pace. In 1997, the company acquired SuperNet Inc. for $20 million and soon after, in 1998, acquired LCI International for $4.4 billion, EUNet for $154 million, Icon CMT of Weehawken for $185 million, and finally, US West in 2000 for an amount ranging from $35 to $80 billion. The acquisition of US West was a defining moment for the company, and showcased the continued growth and success of Qwest (Funding Universe, 2014). Continued information from sources explained that in 1999, Qwest employed about 8,700 employees and brought on an additional 55,000 from the US West acquisition. They had a national fiber-optic network with 18,500 route miles and 4,300 route miles in Mexico and Canada. They were also entering into new agreements and partnerships, including a deal with Microsoft in which they offered a wide range of internet services using Windows 2000. Qwest quickly became one of the telecommunication industry leaders. They specialized in services including long-distance telephone service and high-speed internet. They were paired against the three largest competitors in the industry: AT&T, MCI Worldcom, and Sprint Corp. Qwest aimed to develop a competitive advantage by providing faster, more affordable services, while expanding their network coverage and presence (Funding Universe, 2014). Qwest’s growth continued and was aided by acquiring the rights to bury fiber optic cables from land owners. They would construct and lay the cables, and then ultimately sell these cables and/or the right to use them with other providers. These are referred to as indefeasible rights of use (IRU). By 1999, Qwest reportedly recouped 90 percent of its total cost to obtain and construct the entire network through the sale of IRU’s to their competitors (SEC, 2014) In 2002, at the peak of Qwest’s fraudulent activity, the acting Chairman and Chief Executive Officer (CEO) was Joseph Nacchio. Other top executive officials declared on the company’s annual 10-K statement were Afshin Mohebbi, the...


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The United States Department of Justice. (2012, May). Justice Department Returns $44 Million to Victims of Qwest Communications Fraud. Retrieved from Department of Justice website: http://www.justice.gov/opa/pr/2012/May/12-crm-577.htmlU.S. Securities and Exchange Commissions. (2004, October). SEC Charges Qwest Communications International Inc. with Multi-Faceted Accounting and Financial Reporting Fraud. Retrieved from SEC website: http://www.sec.gov/news/press/2004-148.htmU.S. Securities and Exchange Commissions. (2013, January). Securities and Exchange Commission, Insider Trading. Retrieved from SEC website: https://www.sec.gov/answers/insider.htmU.S. Securities and Exchange Commissions. (2014, January). Securities and Exchange Commission, Plaintiff, v. Qwest Communications International Inc., Defendant. Retrieved from SEC website: http://www.sec.gov/litigation/complaints/comp18936.pdfVuong, A. (2009, April). Ex-Qwest chief Nacchio reports to prison in Pennsylvania. The Denver Post. Retrieved from Denver Post website: http://www.denverpost.com/ci_12139713Vuong, A. (2011, April). CenturyLink completes purchase of Qwest. Retrieved from Denver Post website: http://www.denverpost.com/ci_17750883Vuong, A. (2012, May). Victims of Qwest securities fraud get little back. Retrieved from The Denver Post website: http://www.denverpost.com/ci_20548197/victims-qwest-securities-fraud-get-little-backWaters Kraus-Attorneys and Counselors. (2013, January). $44 Million Returned to Victims of Qwest Securities Fraud Scheme. Retrieved from Waters Kraus website: http://www.secfraudlawyer.com/index.aspx?id=news_qwest_securities_fraud_scheme
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