Lawyers for Qwest shareholders are now gunning for former CEO Joe Nacchio and former CFO Robert Woodruff.
Nacchio, who led Qwest from 1997 to 2002, and Woodruff were not included in a $400 million settlement today of a class-action lawsuit against Qwest and former executives and board members.
The suit claimed accounting fraud under Nacchio’s watch that resulted in the company restating $2.5 billion in revenue and the same amount in earnings.
“It allows us to proceed to trial against Nacchio… and Woodruff,” Patrick Coughlin, of law firm Lerach Coughlin, said of the settlement. “I think we’ll be able to prove knowing participation. It’s a lot like Enron. We think they committed knowing violations.”
Lawyers for Nacchio and Woodruff did not return phone calls for comment.
As a group, Qwest insiders reaped profit of $640 million by selling stock from 1997 to 2001. A Securities and Exchange Commission lawsuit filed in March against former Qwest officials says that Nacchio reaped $176.5 million in insider trading profit from 1999 to 2002, and Woodruff got $36.8 million.
In addition to the SEC case and shareholder lawsuits, the U.S. District Attorney’s office in Denver is pursuing a criminal investigation.
Qwest CEO Richard Notebaert said today in an earnings call that Qwest has agreed to pay $100 million this year, $100 million next year and the rest in 2007 to settle the shareholder suit.
Thousands of shareholders who held stock in Qwest from May 1999 to July 2002 may be able to get back a portion of their investment under terms of the deal.
Lawyers and a Qwest spokesman said they didn’t know how many shareholders there were at that time or how much each one might get in connection with the settlement.
“This settlement represents an important step for Qwest,” said Notebaert, who was brought in after Nacchio was fired to clean up the company.
Former accounting firm Arthur Andersen, which was Qwest’s auditor for years, would also pay $10 million as part of the settlement, a Qwest statement said.
Last year, Qwest paid a $250 million fine to the SEC in connection with allegations of accounting fraud. That money also will be returned to shareholders, according to Qwest.
New England Health Care Employees Pension Fund of Connecticut, the lead plaintiff in the settled case, was satisfied with the offer, said John Creane, the pension fund lawyer.
He said some institutional investors that were originally parties to the class-action suit are not covered by the settlement claim. One of those is California State Teachers Retirement System.
“Given the level of corporate fraud that has gone on in this country, it adds up to a really serious problem, so we push for the largest recovery we can for ourselves and for other investors,” Creane said.
Staff writer Beth Potter can be reached at 303-820-1503 or bpotter@denverpost.com.
