Qwest nears pact in lawsuit
Shareholders case alleges securities fraud

By Jeff Smith
Rocky Mountain News

Tuesday, November 1, 2005

Qwest Communications has an agreement in principle to settle its consolidated class-action shareholders lawsuit for less than $500 million, according to several sources familiar with the negotiations.

The Denver telco could announce the settlement of its largest private securities fraud lawsuit, led by New England Health Care Employees Pension Fund, as early as today during its third-quarter earnings conference call.

The tentative settlement, which still must be approved by the court, includes many former Qwest executives and directors but doesn't cover former Chief Executive Officer Joe Nacchio and former Chief Financial Officer Robert Woodruff.

The lawsuits alleged that Qwest and former officials misled investors about the company's true financial condition.

In recent days, Qwest still was working behind the scenes to get other litigants to opt in to what it hoped would be a global settlement resolving all of its fraud suits stemming from the Nacchio era. The final settlement figure will depend on how many parties join the agreement.

As of Monday, several plaintiffs, including the California State Teachers' Retirement System, had balked in joining.

Qwest said Monday that it doesn't comment about pending litigation.

An official with New England Health's lead law firm, Lerach Coughlin Stoia Geller Rudman & Robbins of San Diego, didn't return a phone call seeking comment.

The California State Teachers' Retirement System, or Calstrs, indicated Monday evening that it still intends to separately pursue its litigation against Qwest, former CEO Nacchio and others.

"It's not unusual for class-action (plaintiffs and defendants) to go out and talk to the other parties . . . (but) we continue to be very highly committed to pursuing our case," said Sherry Reser, Calstrs' communications director. "We are moving ahead with our plans for depositions, sometime in January."

Reser said Calstrs, which alleged that it lost about $150 million in Qwest stock and bonds, still believes it's important that "we receive compensation related to the losses, and we're interested in the wrongdoers being active in the settlement."

Calstrs said that Nacchio, Citigroup's Salomon Smith Barney and others engaged in a scheme "to make Qwest appear more successful than it actually was."

Nacchio, who has denied wrongdoing, also is being investigated by the U.S. attorney's office in Colorado.

While Qwest ideally wants to put to rest all of its private litigation, a settlement of the biggest chunk of lawsuits could be an important step in giving analysts and investors clarity about the company's financial future.

Qwest also found the shareholder lawsuits to be a liability when trying to win the MCI board's approval this year during a failed bid to buy the Virginia-based long-distance carrier.

It wasn't clear Monday what Qwest is willing to pay to settle all of its pending civil suits from Nacchio's tenure. But sources characterized Qwest as believing it has reserved enough money to do so.

Qwest put $750 million in reserve, out of which the company is paying last year's $250 million accounting fraud settlement with the Securities and Exchange Commission. The telco also has access to portions of a $200 million insurance pool.

In the WorldCom securities fraud case, a number of plaintiffs opted out of a $6.1 billion class-action settlement led by the New York State Common Retirement Fund.

Last week, those holdouts reached a separate $651 million settlement, nearly all of which is to be paid by WorldCom's former investment banks.