Former Qwest CEO Agrees to $44 Million Settlement
By Michael Cohn
January 25, 2011
The Securities and Exchange Commission said the U.S. District Court for the District of Colorado has entered a final judgment against former Qwest Communications CEO Joseph P. Nacchio for financial fraud.
Without admitting or denying the allegations, Nacchip has agreed to the entry of a final judgment enjoining him from violations of the securities laws and finding him liable for disgorgement of $44,632,464 plus interest, which will be deemed satisfied by Nacchio's forfeiture of that amount in the related criminal case, United States v. Nacchio. The judgment also prohibits Nacchio from acting as an officer or director of a public company.
A civil penalty was not imposed against Nacchio in light of the criminal sanctions and because Nacchio agreed to waive all rights to appeal a criminal fine of $19 million imposed upon him in the criminal case. It is anticipated that the Commission will ask the Court to add the disgorgement ordered against Nacchio of $44,632,464, plus interest, to a Fair Fund which was established in SEC v. Qwest Communications, Inc., through which the Commission thus far has marshaled and distributed approximately $275 million to harmed investors.
According to the SEC's complaint in this matter, from at least April 1, 1999 through March 31, 2002, Nacchio and others at Qwest engaged in a large-scale financial fraud that hid from the investing public the true source and nature of the company's revenue and earnings growth. The complaint alleged that, although Qwest publicly touted its purported growth in services contracts which would provide a continuing revenue stream, in fact the company fraudulently and repeatedly relied on revenue recognition from one-time sales of assets known as "IRUs" and certain equipment without making required disclosures.
The complaint also alleged that Nacchio and others fraudulently and materially misrepresented Qwest's performance and growth to the investing public. The complaint further alleged that Nacchio sold Qwest stock in violation of the insider trading prohibition of the securities laws.
The SEC said the litigation against the remaining four defendants named in the complaint is continuing.