A former Qwest Communications International chief financial officer pleaded guilty yesterday to a single count of insider trading, becoming...
DENVER — A former Qwest Communications International chief financial officer pleaded guilty yesterday to a single count of insider trading, becoming the highest-ranking officer to admit to wrongdoing in a scandal that forced the telephone company to erase billions of dollars in revenue.
Robin Szeliga, 44, faces up to 10 years in prison and a $1 million fine, though sentencing guidelines recommend a term of 15 to 21 months. U.S. District Judge Walker Miller delayed formal acceptance of the plea until a Nov. 4 hearing.
Szeliga admitted to improperly selling 10,000 shares of Qwest stock in 2001 for a net profit of $125,000. She sold the stock at $41 per share in April 2001 based on what the government said was nonpublic information. Denver-based Qwest is the local phone provider in Washington and 13 other mostly Western states.
Prosecutors said Szeliga knew some business units would fail to meet revenue targets in the first two quarters that year, and that Qwest improperly used nonrecurring revenue in trying to meet those goals.
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“I plead guilty, sir,” Szeliga told the judge in a low voice, adding that she is taking medication for depression. Free on bond, she left court without comment.
Szeliga could play a crucial role in the government’s three-year effort to punish anyone involved in Qwest’s multibillion-dollar accounting scandal. Until now, federal prosecutors have had poor luck successfully prosecuting former Qwest managers, but Szeliga may have been in a position to know what executives knew and when they knew it, including former CEO Joe Nacchio.
Szeliga, Nacchio and five other former executives were accused in a civil complaint of orchestrating massive financial fraud. The Securities and Exchange Commission wants all seven to repay an amount to be determined at trial and civil penalties.
The SEC has said the fraud at Qwest occurred between April 1999 and March 2002, allowing it to improperly report about $3 billion in revenue that helped clear the way for its 2000 acquisition of the regional phone company U S West. The revenue was later restated.
Qwest agreed last year to pay $250 million to settle SEC fraud charges in a deal that did not include individuals. Szeliga has reached a deal with the SEC, but details have not been disclosed.
Among other things, the SEC said Qwest repeatedly booked revenue from one-time sales while falsely claiming to investors that the income was recurring — allowing defendants to reap tens of millions in profits.
The civil lawsuit also blamed Nacchio and others of pressuring employees to meet revenue and earnings goals through bogus sales procedures. The SEC described Nacchio, Szeliga and another CFO, Robert Woodruff, as the scheme’s overseers.
At one point in 2001, regulators said, Nacchio told employees that the “most important thing we do is meet our numbers. It’s more important than any individual product, it’s more important than any individual philosophy. It’s more important than any individual cultural change that we’re making. We stop everything else when we don’t make the numbers.”
At the same time, Nacchio, Woodruff and Szeliga were cashing in Qwest shares, the SEC said, profiting by roughly $300 million. The government contends Nacchio alone reaped an estimated $216 million during the period in question through salary, bonuses, stock sales and other compensation.
Szeliga joined Qwest in 1998 and held various accounting positions before being promoted to CFO in March 2001. In 2002, she became executive vice president of finance until she resigned in August 2003.
The government investigation of Qwest began in February 2002. Szeliga initially was a witness, testifying before a House subcommittee and later at the conspiracy and fraud trial of four former midlevel Qwest managers involved in an Internet deal involving Arizona schools.
Of the defendants, two were acquitted, another was sentenced to probation and the fourth is expected to receive probation.
Szeliga is expected to help government prosecutors in their continuing investigation.