'Rambo' vs. 'blind eye' regulators: Ex-Qwest exec battles SEC
by Greg Avery
June 19, 2010
A former Qwest financial reporting director wants a federal judge to sanction the
The SEC, in a response file Friday, labeled the sanction request
the "latest Rambo tactics" used by James Kozlowski in a
"scorched earth" litigation strategy that's included
unsuccessful ethics complaints against SEC lawyers filed with
The SEC is suing Kozlowski and four other employees of Qwest Communications International Inc. (NYSE: Q), including ex-CEO Joseph Nacchio, on allegations of misrepresenting billions worth of business at the Denver-based telecom prior to the 2001 collapse of its stock price.
Attorneys for Kozlowski filed motions seeking to have the federal agency pay all their client's costs and legal fees, saying he never should've been included in the case, but the SEC hasn't moved to dismiss him from its allegations.
The motion argues that the SEC:
• Included Kozlowski, in its initial 2005 civil complaint, in its allegation that a $3 billion fraud had been committed at Qwest between 1999 and 2002 despite the fact Kozlowski left Qwest in 2000. The SEC narrowed the allegation in an amended complaint but has kept the original language in its 2005 press release about the lawsuit that remains on the SEC website.
• Claimed Kozlowski was responsible for accounting performed on fiber-optic capacity leases that the SEC says was fraudulent. Two outside auditing firms repeatedly approved the accounting as valid, as did Qwest executives who had direct contact with Wall Street, Kozlowski's lawyers argue.
"The SEC turned a blind eye to the facts and law in bringing this case against Mr. Kozlowski," the complaint concluded. "A message needs to be delivered to the SEC that it cannot act so cavalierly."
The SEC, in its reply, noted that the court dismissed some allegations against Kozlowski in March. Losing those legal arguments doesn't amount to having acted in bad faith, something which sanctions require, the SEC argued.
"In fact, if anyone has abused the court in this case and acted vexatiously, it is the defendant," the SEC wrote.
Most of Kozlowski's argument for sanctions "appears to rest on facts showing that the [SEC] removed a confusing allegation from its complaint over four years ago, and that throughout the litigation it provided additional explanation to him of the charges against him," the SEC replied.
No ruling has yet been made on the motion.
The SEC's case against Kozlowski and the other former Qwest officials is scheduled for trial later this year.
A separate, criminal case against Nacchio will be resolved first. Nacchio is scheduled to be resentenced Thursday on 19 insider trading felonies.
Nacchion originally was sentenced to spend six years in prison, pay $19 million in fines and forfeit $52 million; his attorneys are asking that his prison sentence be reduced to three years and five months and that his fine be cut to $3.6 million.