FOR IMMEDIATE RELEASE TUESDAY, FEBRUARY 25, 2003 WWW.USDOJ.GOV CRM (202) 514-2008 TDD (202) 514-1888 WASHINGTON, D.C. Attorney General John Ashcroft today joined Deputy Attorney General Larry Thompson, the chairman of the President's Corporate Fraud Task Force, and U.S. Attorney John W. Suthers of the District of Colorado to announce that a federal grand jury in Denver has returned a 12-count indictment charging four former executives of Qwest Communications with corporate accounting fraud.
The defendants charged in today's indictment are: * Grant Graham, 37, of Evergreen, Colo. Graham was the Chief Financial Officer for Qwest's Global Business Unit; * Thomas Hall, 51, of Englewood, Colo. Hall was a Senior Vice President in the Government and Educational Solutions Group within Qwest's Global Business Unit; * John Walker, 41, of Littleton, Colo. Walker was a Vice President in the Government and Educational Solutions Group; and, * Bryan Treadway, 37, of Atlanta, Ga. Treadway was an Assistant Controller at Qwest.
The indictment alleges that the defendants devised a scheme to falsely recognize more than $33 million of additional revenue for the 2nd quarter of 2001 a quarter for which Qwest was experiencing weak sales. The defendants allegedly sought to fill a gap in revenue by the company's Global Business Unit by immediately reporting millions of dollars from a purchase order with the Arizona School Facilities Board in violation of Securities and Exchange Commission rules. The indictment also alleges that the defendants sought to hide their actions by falsifying documents and engaging in securities and mail fraud.
"As we continue our efforts to battle corporate fraud, our message is clear. We will protect the integrity of our markets by punishing those who falsify financial information out of sheer greed," said Attorney General John Ashcroft.
Arrest warrants have been issued for the defendants named in today's indictment, and they have been given 48 hours to surrender to the U.S. Marshals Service.
Qwest is a publicly-held company whose shares are traded on the New York Stock Exchange. Qwest is obligated to, and did, file quarterly reports with the SEC. According to the indictment, during the 2nd quarter of 2001, the Global Business Unit at Qwest was given a revenue target of $1.825 billion by Qwest management. This target was to be met through a combination of recurring revenue and non-recurring revenue, meaning that Qwest's sales teams needed to find and close new transactions in order for the company to reach its revenue targets.
In January 2001, Qwest had entered into a purchase order with the Arizona School Facilities Board to design and implement a statewide school computer network, including Internet connectivity. According to the indictment, the defendants arranged for Qwest to enter into a "bill and hold" transaction in which the seller sells equipment to a buyer, bills the customer and then holds the merchandise for later delivery. The indictment alleges that the defendants violated strict SEC requirements on "bill and hold" transactions by immediately recognizing the SFB revenue. As charged in the indictment, the defendants knew their transactions would meet none of the SEC's requirements, so they then filed false documents and took other steps to hide their actions.
All four defendants are charged with: * Conspiracy to commit an offense against the United States, in violation of 18 USC Section 371, which carries a penalty of no more than 5 years in prison and a $250,000 fine, or both; * Securities Fraud False/Misleading Statements, Books, Records, in violation of 15 USC Section 78ff and 18 USC Section 2, carrying a penalty of not more than 10 years in prison and/or a $1 million fine; * Securities Fraud Manipulative and Deceptive Devices, in violation of 15 USC Section 78j and 18 USC Section 2, carrying a penalty of up to 10 years in federal prison and/or a fine of up to $250,000; * Making False Statements, in violation of 18 USC Sections 2 and 1001, carrying a penalty of up to five years in prison and/or a $250,000 fine; and, * Wire Fraud Affecting a Financial Institution, carrying a penalty of up to 10 years in prison and/or a fine of up to $1 million.
"Today's indictment concludes only the first phase of the Qwest investigation by the Justice Department," said United States Attorney John Suthers, of the District of Colorado. "There are several other aspects of Qwest's corporate conduct and the conduct of its executives that are the subject of a continuing investigation." The Qwest Communications Arizona School Facilities Board case was investigated by the Federal Bureau of Investigation and the SEC. The case is being prosecuted by First Assistant U.S. Attorney Bill Leone and Assistant U.S. Attorneys William Taylor and Tim Neff. In addition to today's criminal charges, the SEC has filed civil fraud charges against eight current and former officers and employees of Qwest Communications International Inc., alleging they inflated the company's revenues by approximately $144 million in 2000 and 2001 in order to meet earnings projections and revenue expectations. The Commission's lawsuit, filed in U.S. District Court in Denver, seeks anti-fraud injunctions, civil money penalties, disgorgement of ill-gotten gains, and for certain defendants, a permanent bar from service as an officer or a director of a public company.
The Corporate Fraud Task Force, chaired by Deputy Attorney General Thompson, was created by President Bush on July 9, 2002, to oversee and direct federal law enforcement actions against corporate corruption that had eroded investor confidence in the integrity of U.S. markets. The Justice Department and the Corporate Fraud Task Force brought criminal charges against more than 160 individuals, including executives and employees at WorldCom, Adelphia, Enron, Imclone and others.
Other cases brought recently under the auspices of the Corporate Fraud Task Force include: * TYCO: This February, the U.S. Attorney's Office for the District of New Hampshire and the Department's Tax Division announced the indictment of the former Chief Financial Officer of Tyco International, Mark H. Swartz, on tax evasion charges. The indictment alleges that Swartz illegally evaded nearly $5 million in personal federal income taxes; * DYNEGY: In January, the U.S. Attorney's Office for the Southern District of Texas obtained a seven-count indictment charging Michelle Maria Valencia, a former senior natural gas trader with Dynegy Marketing and Trade, with filing bogus reports to the Federal Energy Regulatory Commission that are used to calculate the "index" price of natural gas; * El PASO: In Houston last December, a federal grand jury returned an indictment against Todd Geiger, an energy trader at El Paso Corporation, on charges of falsely reporting price information to the Federal Energy Regulatory Commission and wire fraud as part of a scheme to manipulate energy prices; * MERCURY FINANCE: In December, the U.S. Attorney's Office for the Northern District of Illinois obtained an indictment of Bradley Vallem, the former treasurer of the now-defunct Mercury Finance Company, on bank fraud and wire fraud charges in connection with his participation in a scheme to overstate revenue and hide losses of more than $30 million; * COMMERCIAL FINANCIAL SERVICES: In December, the U.S. Attorney's Office for the Northern District of Oklahoma and the Justice Department's Criminal Division obtained the indictment of Commercial Financial Services' former CEO William Bartmann for mail fraud, wire fraud, bank fraud and money laundering; * INFORMIX: In November, the U.S. Attorney's Office for the Northern District of California obtained the indictment of former Informix CEO Phillip White on charges of securities, mail and wire fraud in connection with financial accounting fraud at the database software company; and, * PEREGRINE SYSTEMS: In November, the U.S. Attorney's Office for the Southern District of California obtained the conviction by guilty plea of Ilse Cappel, an assistant treasurer at Peregrine Systems, a San Diego software company. Cappel pleaded guilty to a charge of conspiracy to commit bank fraud, and is cooperating in an ongoing criminal investigation.
Examples of other cases and information about the Corporate Fraud Task Force can be found on the internet at www.usdoj.gov/dag/cftf. The FBI has also set up a phone tip line for information regarding corporate fraud and abuse, at (888) 622-0117. 03-112
Source: US Department of Justice
