After a series of legal actions against former executives of Qwest Communications International for alleged financial fraud, the U.S. Securities and Exchange Commission (SEC) finally worked its way to the top of the executive ladder. It charged former Qwest Chief Executive Officer (CEO) and Co-Chairman Joseph Nacchio on Tuesday with fraud and other securities-law violations.
The SEC charges against Nacchio came within hours of a jury convicting another high-profile ex-CEO defendant, WorldCom's Bernard Ebbers, on all charges leveled against him in connection with WorldCom's US$11 billion accounting fraud. The SEC's charges are civil, not criminal, but the agency generally conducts its investigations in tandem with the U.S. Department of Justice, which has the authority to bring criminal charges.
The SEC's complaints, filed in Colorado's U.S. District Court, also name Denver-based Qwest's former chief financial officers, chief operating officer and other top executives. From 1999 to 2002, Qwest engaged in a complex scheme to improperly record more than US$3 billion in revenue and exclude US$17.3 million in expenses, according to the SEC. The SEC is seeking a return of fraudulently obtained profits, with interest, along with injunctions and civil penalties against the defendants.
Two defendants, Qwest's former pricing and office management Senior Vice President Roger Hoaglund and former finance Senior Vice President William Eveleth, agreed to pay fines as part of a settlement agreement, without admitting or denying the charges. Qwest, similarly, settled with the SEC in October over charges against the company. Without admitting or denying guilt, Qwest agreed to pay a US$250 million penalty, to be disbursed among affected investors.
Nacchio's attorney, Charles Stillman, said Nacchio had cooperated with the SEC's investigation and that he maintains his innocence.
"The SEC has ignored (Nacchio's) good faith reliance on Qwest's extensive governance and disclosure process, which involved significant participation and advice of many other responsible people," Stillman said in a written statement released via a spokeswoman. "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."
Nacchio left Qwest in 2002 amid a barrage of fire about the company's poor financial performance, his lucrative compensation package and the beginning of the SEC's probe. Since then, the scandal-tainted company has struggled to rebuild. Recently, it landed in the headlines after making an US$8 billion bid to wrest MCI away from its intended buyer, Verizon Communications.