Qwest not off hook yet

DENVER — U.S. prosecutors said Thursday Qwest Communications isn't off the hook, even though the company agreed to a $250 million civil fine for its addiction to fraudulent accounting.

The Securities and Exchange Commission set the fine, accusing senior managers of directing a scheme to record one-time revenue from the sale of assets as recurring revenue from operations.

After the settlement was announced, Denver U.S. attorney's spokesman Jeff Dorchner said federal prosecutors are still investigating the company for possible criminal violations.

Dorchner said the investigation includes the SEC's allegations, but he declined to say whether it was broader. He could not say when the criminal investigation might end.

The SEC said it is also still investigating individuals in the case, and the settlement requires Qwest to cooperate.

In a scathing 56-page complaint, the SEC accused Qwest of a "massive financial fraud" for falsely reporting sales or trades of capacity on its fiber-optic cables as recurring revenue.

It said Qwest was so dependent on the tactic to meet its growth projections that employees compared the company to a drug addict and referred to the transactions as Qwest's "heroin."

Qwest agreed to the settlement without admitting or denying the allegations. "We are pleased to conclude this matter, which will now allow us to focus even more of our effort to provide exceptional value and service to customers," CEO Richard C. Notebaert said in a statement.

The fine was the second-largest ever levied by the SEC for financial reporting fraud, after a $750 million penalty against WorldCom, SEC spokesman John Heinie said.

Donna Jaegers, a research analyst with Janco Partners in Denver, said Qwest was expecting worse and had set aside $500 million.

"To the average person on the street, wow, $250 million is huge. To the people who are following it, it's not that much," she said.

"This would be a great thing for Qwest to get this behind it. They need to be paying attention to their business," she said.