The scandal over corporate accounting at Qwest took on Enron-size proportions yesterday with claims that top executives made half a billion dollars selling company stock from 1999 to 2001, at a time when the Colorado firm was exaggerating profits through improper accounting, writes Conor O'Clery.
Qwest admitted on Sunday it improperly accounted for more than $1.1 billion (€1.12 billion) of transactions during the last three years, enabling it to show positive returns and maintain an inflated stock price.
Mr Joseph Nacchio, Qwest's chief executive who was forced to resign last month as the US Justice Department investigated claims of fraud, made $227 million, according to Thomson Financial, which monitors Securities and Exchange Commission filings.
Mr Robert Woodruff, the chief financial officer who left in 2001, made $29 million; former chief strategy officer Mr Lewis Wilks $49.3 million; former executive vice-president Mr Stephen Jacobsen $46.3 million; and former chief information officer Mr Brij Khandelwal $46 million.
Mr Philip F. Anschutz, a member of Qwest's board and the company's largest shareholder, made $1.45 billion selling shares in May 1999. Among other current board members, Mr Drake Tempest, the company general counsel, made $13 million and Mr Craig Slater made $18.5 million.
Stock in the company, the dominant telephone provider in 14 US states, fell again yesterday by 13 per cent after plunging 26 per cent on Monday. Qwest's troubles follow revelations of improper accounting by other leaders in the telecommunications sector, including WorldCom, which nine days ago filed for bankruptcy after improperly booking $3.85 billion.
At both Qwest and WorldCom, executives became super-rich through selling stock based on manipulated figures. At Enron, 29 top insiders took $1.1 billion in stock sales with chief executive Mr Kenneth Lay realising $101.4 million. At WorldCom, chief financial officer Mr Scott Sullivan sold $45.4 million in company stock while recording $3.9 billion in expenses as capital expenditure to boost profits.
Several telecom companies exchanged long-term rights to use other companies' lines to expand in the 1990s, but often paid each other for comparable-value capacity they did not necessarily need to show growth. At a time when the price of fibre optics capacity was collapsing, this accounting technique - endorsed by auditors Arthur Andersen - convinced investors that growth prospects remained healthy.
Qwest is regarded as one of the most successful telecom giants. It had a reputation for always meeting analysts' quarterly estimates. In January 2001, Mr Nacchio said he still expected the company's growth to accelerate. In the following three months, he sold $57 million in Qwest stock. The company missed its target by 10 per cent.
On Sunday Qwest's new chief executive, Mr Richard Notebaert, said the company would restate its results for 1999 to 2001 after it had completed an internal review of its accounting.
