After a criminal investigation of midlevel Qwest officials sputtered with two acquittals and probation, the federal government took a much...

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DENVER — After a criminal investigation of midlevel Qwest officials sputtered with two acquittals and probation, the federal government took a much more dramatic step yesterday by going after former top executives in civil court.

The latest salvo against Denver-based Qwest from the Securities and Exchange Commission (SEC) may turn up evidence that could be invaluable in a future criminal case, experts said.

The SEC sued former Qwest Chief Executive Joseph Nacchio and six other executives, claiming they were behind a “massive financial fraud” that forced the regional phone company to later erase about $3 billion in revenue from its books.

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The commission and the Justice Department typically move in lockstep, with simultaneous civil and criminal filings against corporate defendants. But there have been numerous exceptions to that rule, said Christopher Bebel of Houston, a former federal prosecutor and former SEC counsel.

“The fact that prosecutors did not announce the return of an indictment today is not conclusive,” Bebel said. “The bottom line: It may give these defendants a temporary sigh of relief, but it won’t provide for any lasting peace and they are still on the line and their fate still hangs in jeopardy.”

Also named in the SEC’s complaint were Robert Woodruff and Robin Szeliga; both former chief financial officers; Afshin Mohebbi, former chief operating officer; Gregory Casey, a former executive vice president of Qwest’s wholesale business; and James Kozlowski and Frank Noyes, two former accountants.

The SEC described Nacchio, Woodruff and Szeliga as the scheme’s overseers, directing the key details to meet revenue targets “at all costs.”

At one point in 2001, regulators said, Nacchio told employees, “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, profiting by roughly $300 million, the SEC said. The government contends Nacchio alone reaped about $216 million during that time through salary, bonuses, stock sales and other compensation.

Charles Stillman, an attorney for Nacchio, said his client had never misrepresented Qwest’s financial condition.

“The SEC unfairly seeks to impute to Mr. Nacchio and others at Qwest responsibility for the results of a widespread industry downturn in a deteriorating economy,” Stillman said.

“As Mr. Nacchio has consistently stated, he did nothing wrong and did not instruct anyone else to do anything wrong during his tenure at Qwest, and he looks forward to being vindicated.”

Prosecutors are still investigating accounting irregularities at Qwest, said Jeff Dorschner, spokesman for the U.S. Attorney’s Office in Denver. He declined to elaborate.

Bebel said that as the civil case develops, the SEC will give the Justice Department transcripts of witness interviews and other evidence it gathers.

Atlanta attorney J. Boyd Page, an expert in securities litigation, said, “Clearly, it is a signal that the matter is escalating to a very serious level.”

Qwest, Washington’s largest local phone-service provider, earlier agreed to pay $250 million to settle SEC fraud charges in a deal that excluded individual officials.

Of four former midlevel executives accused of improperly booking revenue in an Arizona schools deal, two were acquitted, one was sentenced to probation and one is expected to receive probation.

“The Department of Justice has had a very difficult time with the Qwest case,” said Denver securities-law attorney Tony Leffert, a former federal prosecutor. “They’ve had very limited success, and it may be the Justice Department may say, ‘We’ll let the SEC address the case in this way and may not pursue charges.’ ”

Former SEC trial attorney Howard Schiffman said the civil charges present Nacchio and the others with a no-win situation: either keep quiet to avoid self-incriminating statements or vigorously defend against the charges and increase the possibility of making statements that could be used in a criminal case.

He agreed that evidence from the SEC case could help prosecutors in an era of public anger against corporate malfeasance.

“In this environment, there is a huge bias by the jury to believe the government’s allegations that senior executives have entered into misconduct,” Schiffman said.