New York – New York State Comptroller Alan Hevesi is suing Qwest Communications International Inc. and Arthur Andersen LLP on behalf of the state’s retirement fund, saying the company fraudulently overstated its revenues for three years.
The shareholder lawsuit filed in U.S. District Court this week on behalf of the New York State Common Retirement Fund sought unspecified damages for the overstatement of Qwest’s growth, revenues and earnings between March 31, 1999, and July 29, 2002.
The lawsuit said the company entered into transactions with little or no legitimate business purpose and engaged in improper accounting practices, leading to public reports that were inaccurate, false and misleading.
“We don’t comment on pending litigation,” Qwest spokesman Bob Toevs said Wednesday.
Qwest provides telecommunications service in 14 states and is the biggest Fortune 500 company in Denver by revenue.
The lawsuit also accused the Arthur Andersen accounting firm of giving “substantial assistance” to a conspiracy to misrepresent Qwest’s true financial condition by making false statements or failing to disclose damaging information.
The new lawsuit came as a court in Denver considers a $400 million proposed settlement of shareholder lawsuits stemming from an accounting scandal at Qwest.
The suits were filed in wake of an accounting scandal that forced the phone company to restate billions of dollars in revenue.
The tentative $400 million settlement announced in November would resolve many claims against the company, some former executives and most of its board of directors.
But several shareholder groups have stayed away from the settlement, including the California State Teachers’ Retirement System. A spokeswoman in November said the retirement group wanted Qwest to put new policies in place so future shareholders cannot lose their shirts.
“We’re looking for more than just the money,” Brenna Neuharth, a spokeswoman for the retirement group, said at the time. “We would like to see good corporate governance become part of this corporation’s daily operations.”
Government officials have said Qwest booked revenue from one-time sales of equipment and fiber-optic swaps while falsely claiming to investors that the income was recurring. Qwest later restated earnings from 2000 and 2001 to erase about $2.2 billion in revenue.
Former Qwest chief executive Joseph Nacchio faces 42 criminal insider-trading counts for $100.8 million worth of Qwest stock trades he made in 2001, before the company’s fortunes fell. Nacchio has pleaded not guilty to the charges.
The Denver Post contributed to this report.
