SEC Staff Blocked From Charging Global Crossing Chairman

Power and corruption go hand in hand. It now appears that Republican savy SEC Commissioners are protecting their power base. Unbelievably the Commission rejected a settlement agreement worked out by staff and dropped charges against a non-executive chairman who sold $734 million in stock before his company sought bankruptcy protection. Either the powerful are being protected or the fine was so deficient that the Commission thought it would be an embarrassment with a guilty plea, in which case it was better to claim that the Commission could not find anything wrong. In either case, the SEC as protectors of the investing public is an illusion.

Link: WSJ.com - SEC Won't Charge, Fine Global Crossing Chairman.

SEC Won't Charge, Fine Global Crossing Chairman Agency's Donaldson Goes Against Staff, Noting Winnick's Nonexecutive Role By DEBORAH SOLOMON Staff Reporter of THE WALL STREET JOURNAL December 13, 2004; Page A1 WASHINGTON -- The Securities and Exchange Commission won't file civil securities charges against former Global Crossing Ltd. Chairman Gary Winnick over disclosure violations or impose a $1 million fine, according to people familiar with the matter.

The action came despite objections from the SEC's two Democratic members and represents a rare reversal by the commission of its enforcement staff. It also caps a lengthy investigation of Global Crossing, the former Wall Street darling that helped set off a gold rush to capitalize on the Internet boom of the late-1990s.
The company, which sold fiber-optic capacity, eventually crumbled under a $12.4 billion debt load and filed for bankruptcy protection in January 2002. It emerged from bankruptcy last year and is still on shaky financial footing.

The SEC had been expected to fine Mr. Winnick $1 million for failing to properly disclose a series of transactions undertaken by the telecom company, and he had tentatively agreed to pay that sum as part of a settlement agreement. But at a closed-door commission meeting last week, SEC Chairman William Donaldson and his two fellow Republican commissioners, Cynthia Glassman and Paul Atkins, opposed a staff recommendation to charge Mr. Winnick. Mr. Donaldson expressed concern that Mr. Winnick was a nonexecutive chairman and hadn't signed off on the inadequate disclosure, these people said.

In its investigation, the SEC had been looking for such things as potential insider trading by the company's executives, including Mr. Winnick, and use of sham deals to boost revenue. Much of the investigation, which lasted more than two years, had focused on Global Crossing's use of so-called swap transactions, in which telecom companies trade roughly equal amounts of fiber-optic capacity and book the sale as revenue and the purchase as a capital expense. The SEC also looked into $734 million in stock that Mr. Winnick sold before the company sought bankruptcy protection.

The probe discovered no evidence of fraud or insider trading, but it did find that executives failed to provide regulators with adequate disclosure about the swap transactions. While the accounting for the transactions was wrong, the SEC concluded that it wasn't done with intent to commit fraud and didn't have a material effect on the company's finances, said people familiar with the matter. Global Crossing's demise stemmed from a glut of capacity and mounting debt.

Mr. Winnick declined to comment on the case. His lawyer, Gary P. Naftalis, said, "We always believed that the evidence demonstrated that Gary Winnick acted lawfully and properly in connection with Global Crossing."

The vote not to take action against Mr. Winnick could jeopardize the SEC's deals with three other former Global Crossing executives over the alleged disclosure violations. The executives, including Joseph Perrone, former chief accounting officer, and Dan Cohrs, former chief financial officer, wanted Mr. Winnick to accept some responsibility for the company's actions, people familiar with the matter said. The name of the third executive couldn't be determined. SEC enforcement lawyers are now expected to try and get the executives to accept the settlements without Mr. Winnick's agreement, these people said.

In previous commission enforcement actions, Mr. Donaldson has tended to side with the SEC's two Democrats, commissioners Harvey Goldschmid and Roel Campos, and push for tough sanctions on companies and individuals accused of wrongdoing, and Mr. Atkins and Ms. Glassman have tended to oppose financial penalties for corporations.

Appointed by President Bush, Mr. Donaldson has also split with his fellow Republicans on several rule proposals, including a mutual-fund governance rule and a plan to register hedge-fund advisers.

He has faced opposition on some key issues by members of the Bush administration. The commission is also encountering some push-back from business groups, including the U.S. Chamber of Commerce which sued the SEC over its mutual-fund governance rule.

At the meeting last Thursday, a heated and lengthy session, SEC lawyers recommended fining Mr. Winnick, whom they believe constructed and pushed for the swap transactions as a way to help hit revenue targets. They argued that while Mr. Winnick may have held the title of nonexecutive chairman, he was functionally a hands-on officer of the company who showed up at the office every day and was involved in major business decisions, these people said. SEC enforcement lawyers also argued that Mr. Winnick told others to make sure the transactions were disclosed properly, but didn't follow up to make sure it was done correctly.

But Mr. Donaldson objected to sanctioning Mr. Winnick, saying he didn't believe the former chairman had enough involvement in the company's day-to-day operations to warrant civil charges, according to people familiar with the meeting. He expressed concern that Mr. Winnick didn't write, review or sign off on the disclosure the company filed with the SEC about the swap transactions. While the three Republicans agreed the disclosure was inadequate, they argued that the other operating executives -- and not Mr. Winnick -- should be held liable.

Some within the commission are concerned that the SEC's action on Mr. Winnick could send a message to executives that they can escape legal action by claiming a hands-off role at their company. A standard defense from many executives in trouble with regulators is that they didn't know anything about the problems at their company and that any wrongdoing was carried out by subordinates. Executives at companies from Enron Corp. to WorldCom Inc. have assumed such defenses.

Others within the SEC say Mr. Winnick's situation was unique because he was a nonexecutive chairman who was able to show he had no direct responsibility for the problematic disclosure and had delegated those duties to the company's executives.

Some SEC insiders say they are angry that Mr. Donaldson rejected the settlement when Mr. Winnick was willing to agree to the charges and pay a fine. The commission's rejection of a case in which a defendant agreed to settle and pay a fine is extremely rare. In some instances, the SEC will reject the enforcement staff's recommendation to file a lawsuit when the case hasn't been settled. And the SEC at times tells the enforcement staff to go back and rework a settlement agreement and to make it tougher. An SEC spokesman declined to comment.

The Global Crossing case differs from other former telecom highfliers that crashed. In October, the SEC fined Qwest Communications International Inc. $250 million for engaging in a series of misdeeds, including accounting fraud. Qwest agreed to settle the charges and didn't admit or deny the allegations. The SEC is expected to sue Qwest's former chairman and chief executive, Joseph P. Nacchio, soon for his role in the alleged fraud.

Mr. Winnick, who resigned from the company in 2002, has been an active political donor, spreading his wealth on both sides of the aisle. He pledged $1 million for the libraries of former presidents Bill Clinton and George Bush. The company pledged $250,000 each to the Republicans and Democrats to support their political conventions in 2000.

Write to Deborah Solomon at deborah.solomon@wsj.com6

URL for this article:

http://online.wsj.com/article/0,,SB110290635013498159,00.html





Copyright 2004 Dow Jones & Company, Inc. All Rights Reserved

At Last: Four Years After The Fact, Former Network Associates exec charged with fraud. By now a private action would be barred!

One has to wonder how private investors are expected to file complaints that show sufficient facts for a court to find a "strong inference" of fraud within two years of a stock drop or trade, when it takes the government, who has the power of subpoena, years to file a charge. The following article shows just how slow our government is and how unfair the system is to the investor. P.S. Investors---It's too late to sue for insider selling! It had to be done at least 2 years ago...and then you didn't have the evidence! Tough luck thanks Congress.

Full Article Link: Former Network Associates exec charged with fraud - Nov. 30, 2004.

Ex-Network Associates exec charged Former controller for company now known as McAfee Inc. charged with insider trading. November 30, 2004: 7:35 PM EST

SAN FRANCISCO (Reuters) - A former Network Associates controller was charged with insider trading Tuesday, bringing to three the number of executives who have been charged with fraud at the security software maker now known as McAfee Inc., the U.S. Attorney's office said.
The United States Attorney's Office for the Northern District of California said Evan Collins was charged with one count of securities fraud based on stock sales he made in November 2000 before shareholders had a level playing field on which to sell their stock.
Collins, 42, was a former controller at the Santa Clara, California-based company, known for its widely used McAfee anti-virus software.....Collins is the third former Network Associates executive charged with securities fraud after a two-and-a-half-year investigation by federal authorities.

The charges stem from financial statements Network Associates submitted in 1999 and 2000 that authorities believed were fraudulent.

Collins faces a maximum penalty of 10 years in prison and a fine of $1 million. The U.S. Securities and Exchange Commission also filed a civil suit against Collins on Tuesday....

Other executives
The attorney's office said that between September and November of 2000, Collins learned that several Network Associates executives were involved in a scheme to illegally manipulate Network Associates' financial statements.

Collins is accused of learning that his predecessor and others improperly transferred $15 million from a tax reserve account to an accounts receivable reserve account to boost revenue, the attorney's office said.

Upon learning this and other inside information, Collins was accused of exercising his options to buy and sell 30,000 shares of Network Associates' common stock, realizing proceeds of about $250,000....

Prabhat Goyal, the company's former chief financial officer, was indicted June 17, 2004, by a federal grand jury in San Francisco on 20 counts of securities fraud and conspiracy....

Collins' replacement as controller, Terry Davis, pleaded guilty to securities fraud on June 11, 2003....

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Copyright 2004 Reuters All rights reserved.

Find this article at:
http://money.cnn.com/2004/11/30/technology/network_associates.reut/index.htm

The Price We Pay for Cosy Ties with Banks and Auditors!

Rarely could corporations defraud investors without the assistance of others like the bankers, auditors and attorneys. An article written by Andrew Davis and James Pressley in the Business Reporter entitled Millions pay the price for Parmalat's cosy ties with banks and auditors, shows how Bank of America assisted Parmalat in defrauding millions of investors out of billions:

Four years before milk producer Parmalat Finanziaria collapsed in Italy's biggest bankruptcy, Bank of America's head of corporate finance in Milan, Luca Sala, encouraged the company to publicly describe $300 million (R1.8 billion) in loans as investments, not debt.

"Please use a text like the following," Sala wrote in a fax on December 17 1999. "Bank of America has led a group of US investors to invest $150 million in the Brazilian operating subsidiary of the Parmalat Group. The transaction may be increased by a further $150 million."

A day later, the dairy issued a news release under the headline "New shareholders for Parmalat in Brazil". It drove Parmalat shares up 17 percent the next trading day - the shares' largest one-day gain ever.

For almost a decade, bankers like Sala structured financing that helped Parmalat build a house of cards that kept debt off the books, confounded credit analysts and misled investors, according to thousands of pages of court documents, internal e-mails and regulatory filings.

"There is a great deal of concern about the role of investment banks and commercial banks in very complicated transactions ultimately intended to disguise true financial results," says David Ruder, who served as US Securities and Exchange Commission chairman from 1987 to 1989.

"It is the kind of action motivated by greed and a lack of integrity that ought not to be accepted," says Ruder.

Milan prosecutor Francesco Greco asked Judge Cesare Tacconi in May to indict Sala, Fausto Tonna (who was Parmalat's chief financial officer in 1999), Parmalat founder Calisto Tanzi and 26 other former officials, bankers and auditors on criminal charges that they had manipulated the market. The judge hasn't yet ruled on the request.

The Parmalat executives are also under investigation for fraud in a court in Parma.

Parmalat paid banks well for their help, says Enrico Bondi, the company's government-appointed bankruptcy administrator and chairman. About 40 percent of the e13.2 billion (R102.5 billion) in financing the company burned through from 1990 to 2003 went towards interest payments and commissions for the banks, he wrote in a June report.

Foreign banks raised about 80 percent of all bank financing for the company after 1990, providing the means for Tanzi and Tonna to hide more than a decade of losses and accounting fraud, prosecutors have said.

The weight of that debt dragged Parmalat into one of Europe's biggest bankruptcies when it defaulted in December 2003.

The banks say they were victims, not agents, of the fraud. Citigroup says it was owed about e540 million when Parmalat collapsed, making it the company's biggest creditor. Bank of America has already written off a similar amount of its debt.

Both banks say they didn't know the true state of Parmalat's finances before the fraud was exposed, and they plan to contest any allegations in court. Bank of America chief executive Kenneth Lewis says: "It defies logic to think that [we] knew of a company that was not solvent and were lending $600 million to it."

The case raises questions about how far banks, analysts and other gatekeepers of the financial system should go in determining the wellbeing of companies and in sharing that information with investors.

"The more desperate you become, the more creative you become," says Louis Gargour, a senior money manager at hedge fund firm RAB Capital in London. "If the banks were helping them with these novel financing structures, they should have sensed that something was amiss."

Gargour says he began shorting Parmalat bonds - betting they would decline in value - almost a year before the bankruptcy.

Greco also asked the judge for indictments against Parmalat's former auditors at the Italian arms of Grant Thornton International and Deloitte Touche Tohmatsu: Grant Thornton SpA and Deloitte & Touche SpA.

"There is a lot of freewheeling going on," says James Cox, a professor of corporate and securities law at Duke University in Durham, North Carolina.

He says bankers are often motivated more by winning fees than following rules. "Sometimes there is a breakdown of the protections in the organisation that aim to keep them in line."

Grant Thornton International has responded that Parmalat's accounts were audited mostly by Grant Thornton SpA, which the global accounting firm expelled from its network in January.

Evidence in the Milan court filings suggests that analysts, as well as bankers and auditors, could have done more to warn investors about Parmalat.

Internal e-mails show that Standard & Poor's (S&P) affirmed an investment-grade rating on the company in mid-September 2003 - three months before the collapse - even after its analysts said they doubted Parmalat's managers and its accounting.

"The problem is that we do not trust them," S&P analyst Vincent Allilaire wrote of Parmalat management in an internal message on September 12 2003.

"Cash flows are opaque, gross debt is ever increasing, despite their good words, and this reduces confidence further."

S&P didn't lower its credit rating on Parmalat until December 2003, just two weeks before the company publicly admitted that it had reported phony assets.

A written statement from S&P spokesperson Martin Winn says the company did nothing wrong.

Winn says S&P warned the public of increasing risk at Parmalat in September 2003 by lowering its outlook to stable from positive. The statement says S&P repeatedly pressed Parmalat for more information in 2003, only to receive detailed answers that later proved false.

Nine out of 14 stock analysts who followed the company rated its shares a buy in August 2003. There were still seven buy recommendations in November, even after Parmalat had named its third chief financial officer in less than a year and S&P had threatened to cut its rating to less than investment grade.

The Brazilian deal with Bank of America helps explain how Tonna, as Parmalat chief financial officer, succeeded in keeping almost $10 billion of debt off the balance sheet.

Acting at the behest of Tanzi, Tonna inflated sales, fabricated assets and created an interlocking network of international units that funnelled debt through the Netherlands Antilles and the Cayman Islands until it vanished from the group's books, Italian court documents show.

Another way Parmalat disguised debt was by using a company called Buconero, Bondi said in a lawsuit he has brought against Citigroup.

According to Bondi, Citigroup set up Buconero, which is Italian for "black hole", in 1999 in Delaware, allowing Parmalat to account for $137 million in loans as equity.

The loans were made to a unit called Gestione Centrale Latte, known as Geslat.

Citigroup knew Parmalat would record the loans as equity, investors allege in the class action lawsuit filed in US district court in New York on October 18.

"Buconero was created and designed by Citigroup for the express purpose of hiding Parmalat debt by improperly treating loans to Parmalat as equity investments,'' the suit says.

Citigroup said in a statement to bankruptcy court on November 1: "The Buconero/Geslat transaction was not, as is maintained, a disguised loan. The transaction was disclosed in Geslat's accounts, and the structure was fully compliant with the requirements of Italian law."

Citigroup has sued Italy itself, saying the government's handling of the group's restructuring violated the bank's rights as a lender. Bondi used his powers as bankruptcy administrator in July to recommend rejecting more than 99 percent of Citigroup's credit claims against Parmalat.

Sala referred questions to his lawyer, who didn't respond to phone calls and faxed questions. Tanzi and Tonna declined requests for an interview.

Bank of America spokesperson Liz Wood said the bank did nothing wrong in the Brazilian transaction and it was appropriately disclosed at the time. "Bank of America denies that it engaged in any form of market manipulation with respect to Parmalat".

Parmalat and its lenders grew so cozy over the years that the dairy became a revolving door for bankers. Sala left Bank of America in July 2003, when Parmalat hired him as a consultant. Alberto Ferraris joined Parmalat in 1997, after serving as a Citigroup vice-president who helped it expand into Canada in the 1990s.

Massimo Armanini walked through the door in both directions: as head of international corporate finance at UBS in 1996, he organised a e100 million loan to Tanzi. Armanini left UBS to run Parmalat's North American division from 1998 to 2000.

In March 2003, Armanini became Deutsche Bank's managing director for corporate finance in Milan, where he handled a Parmalat bond sale in September.

Parmalat's borrowing binge began in the 1990s, after Tanzi latched on to a new technology that allowed milk to be stored for months without refrigeration.

So Tanzi sought lenders willing to bankroll what became a e4.8 billion acquisition spree that transformed the dairy into one of the world's largest food companies, with operations in 30 countries from Mexico to China.

The acquisitions contributed to Parmalat losing money every year but one from 1990 to 2002, even though it reported earnings each year over that time. Tonna managed to hide e1.78 billion in losses, court records show.

Auditors from Grant Thornton SpA helped out, Tonna testified to prosecutors. Instead of questioning the company's accounts, Grant Thornton auditors assisted in the fraud by shifting some of the debt into two units in the Netherlands Antilles, called Curcastle and Zilpa.

That system faced a threat in late 1999, when Deloitte & Touche SpA replaced Grant Thornton as Parmalat's lead auditor under an Italian law requiring rotation every nine years.

So Grant Thornton auditors advised Tonna to transfer the hidden debt to a new unit they would audit, Tonna testified. In November 1998, the Cayman Islands arm of Grant Thornton International incorporated the unit as Bonlat Financing. Parmalat shifted more than e1 billion of Curcastle and Zilpa debt to Bonlat, which Tonna described in testimony as a garbage can clogged with fake assets and real debt.

Grant Thornton auditors also helped Tonna invent dummy transactions to help bury the bad numbers, Italian court documents show. In 2002, he consulted the auditors about creating a Cayman company called Epicurum, which Parmalat later presented to the world as an independent hedge fund in which it had invested about $500 million.

The collapse of Parmalat unleashed a barrage of criminal investigations, civil lawsuits, creditor claims and soul-searching among investors. It's unlikely anyone will come out a winner.

But one thing is clear: Bondi and the prosecutors have forced open a window on the darker corners of global debt markets.

Published on the web by Business Report on November 28, 2004.
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© Business Report 2004. All rights reserved.

Executives Who Defraud Reap Substantial Rewards

Not to repeat the obvious, but our corporate system is still out of wack when corporate executives who admit deferauding investors are still allowed to walk away with their heist, as this article
by The Associated Press reveals:

Disgraced execs laughing all the way to the bank.

Wednesday, November 3, 2004
Disgraced execs laughing all the way to the bank
Companies slow to end pricey buyout contracts
By Rachel Beck
THE ASSOCIATED PRESS
NEW YORK
PeopleSoft Inc.'s former chief executive lied to Wall Street analysts about the company's business.
So what happened to him? He got to keep his job for a year, and when he was finally fired he walked away with a huge severance package.
This isn't the first time that such nonsense has gone on in corporate America, and chances are that it won't be the last. It doesn't seem to matter what top executives do wrong, they keep getting paid big bucks when they are shown the door.
Things should only be so good for the rest of us. If they are lucky, employees who work lower on the corporate ladder get severance packages based on the number of years worked. But some companies only offer as little as two weeks pay, according to a study released earlier this year by Aon Consulting and the trade group WorldatWork.

Now consider what happened at PeopleSoft, the business-software-maker currently the subject of a hostile bid from rival Oracle Corp. The two companies are awaiting a judge's decision in a recently completed Delaware trial challenging PeopleSoft's implementation of an anti-takeover defense commonly known as a "poison pill."

Craig Conway, PeopleSoft chief executive, was ousted about a month ago, in part because of his clashes with other senior managers. But there was also a big lie that got him into trouble.

Conway soft-pedaled the effect on PeopleSoft's business when he was asked at a September 2003 meeting with Wall Street analysts whether customers were holding back purchases because of a potential sale to Oracle.

"The last remaining customers whose business decisions were being delayed have actually completed their sales and completed their orders. So, I don't see it as a disruptive factor," Conway said during that discussion.

And while the board knew that those comments were wrong, the company omitted his answer only in a corrected version of the meeting transcript that was filed with the Securities and Exchange Commission, not in a supplemental press release or anything else.

The directors, though, believed that Conway made his statements unintentionally. That is, until they recently got a look at a deposition that Conway gave in the poison-pill case, where he admitted he knew that his statement to analysts wasn't true but said it anyway because he was "promoting, promoting, promoting," according to transcripts.

That, in part, led to Conway's termination, but he still will walk away with as much as $50 million in severance and other benefits. The ultimate value of the package depends largely on how much he realizes from the millions of PeopleSoft stock options that were included with a $16 million payment.

That's certainly no small change for someone who misled Wall Street analysts, no less investors who pushed up the stock in the weeks after his bullish comments last year. Conway profited from that, too, when he sold more than 200,000 shares in October 2003 for a profit of about $4.3 million.

How those "golden parachutes" - as the fat severance deals are called - happen has to do with the fact that most employment contracts often loosely define what constitutes "cause."

Just doing a bad job isn't cause, nor is being under investigations or a misdemeanor conviction. It may take something like a felony conviction, but lawyers could even challenge that. And lying to analysts and shareholders? That, too, seems to be questionable, at least in the PeopleSoft case.

Given the attention that excessive severance payments have gotten in the wake of all the corporate scandals, you would think that companies would start to broaden such definitions.

"Sooner or later CEOs leave, and companies need to start thinking about an exit strategy as much as they think about hiring them," said Anthony Sabino, an associate professor at the Peter J. Tobin College of Business at St. John's University. "They need to consider what is it going to take to get them out, and the definition of that needs to be expanded."

Maybe the only good news in all of this is that some companies are dumping their contracts, which means fewer guarantees for departing executives. About 40 percent of companies in the Standard & Poor's 500 index don't have written chief executives contracts vs. about 30 percent five years ago, according to Paul Hodgson, senior research associate at The Corporate Library, a governance watchdog group.

Among those companies: scandal-plagued Marsh & McLennan Cos., which has been rocked by accusations of bid rigging and using a questionable fee structure. That means that Jeffrey Greenberg, who stepped down last week as chief executive of the insurance giant, won't be getting a super-sized severance payout like many of his peers, though he won't walk away penniless thanks to his stock options.

In some other cases, disgraced executives are still walking away with their pockets lined, but not with as much money as they wanted.

At energy company Dynegy Inc., chief executive Chuck Watson was ousted by the board in 2002 after a scandal over accounting fraud surfaced at the Houston company. But he demanded $28.7 million in severance. The company settled in August, agreeing to pay him $22 million to avoid legal wrangling.

That may be a glass-half-full way to look at this troubling situation, but at least it shows some shifting in approach. Change has to start somewhere.

SEC Complaint Against Quest Describes Rampant Accounting Violations

When it gets ugly, it gets ugly. Years from now people will deny that corporate executives do this stuff, as summarized in this artlce below. Have fun and check out the SEC Litigation Release. Quest is paying only $250 million for causing billions of dollars of pain to investors.Someone ought to serve time behind bars.

Rocky Mountain News: Business

Complaint describes rampant accounting violations
SEC: Telco inflated figures with booking tricks, side deals, questionable swaps
By David Milstead, Rocky Mountain News
October 22, 2004
The 56-page Securities and Exchange Commission complaint against Qwest paints a picture of a company out of control, with a "fraudulent scheme . . . orchestrated to meet the company's outrageously optimistic revenue projections."
Sometimes, Qwest's accounting may have been right, but the company's failure to disclose its heavy reliance on one-time deals was a violation of generally accepted accounting principles, the SEC said.

Other times, the accounting was flat-out wrong. Qwest didn't meet accounting rules to book revenue, but added to its top line anyway, the SEC says.
In other cases, salespeople made verbal agreements or created "side letters," then hid the evidence from accountants and Qwest's outside auditor, Arthur Andersen, to protect the sales numbers, the SEC says.
In one instance, Qwest employees "backdated" contracts to allow the company to fraudulently book revenue. In the first quarter of 2001, ended March 31, Qwest booked $69.8 million in revenue even though the contract was completed April 12.

The chief operating officer and chief financial officer - Afshin Mohebbi and Robert Wood-ruff - knew the contract closed late but booked the revenue anyway, the SEC said.

The bulk of the fraud, the SEC says, came from accounting for sales and swaps of network capacity - indefeasible rights of use, or "IRUs."

To book sales and profits on a "swap," Qwest needed to demonstrate that its network capacity was "held for sale" rather than part of the company's property, plant and equipment. To book upfront all the revenue from a lengthy contract, Qwest needed to show it had transferred title to the network fiber.

In fact, the SEC alleges, the company consistently failed to do either, invalidating Qwest's IRU accounting.

While Qwest had to have a business need for network fiber it acquired, the company's sales staff often made quarter-ending deals without consulting Qwest's network planners, the SEC alleges.

As early as 1999, Qwest swapped network capacity with Enron, acquiring a Denver-to-Dallas route, even though Qwest already had built fiber between the two cities that had excess capacity at the time.

From 2000 to April 2001, Qwest bought $70 million of network capacity in Japan in five transactions with Cable & Wireless PLC. Qwest's network engineers, unaware of the deals, were building a Japanese network at the same time. It was then abandoned.

By late 2001, Cable & Wireless and another swap partner, Flag Telecom, were threatening to sue Qwest for failing to follow through on its side promises, the SEC says.

An internal Qwest legal document warned that litigation with Cable & Wireless could "bleed into other transactions" and "unwind" all IRU revenue, the SEC says, quoting from the Qwest document.

"Some members of Qwest senior management withheld from Qwest's auditors and others the litigation and accounting risks," the SEC said, and Qwest settled with Cable & Wireless "on the eve of filing the 2001 Form 10-K (annual report)," the SEC says.

The complaint also covers allegations about transactions with the Arizona school system and Genuity - deals that were the basis for SEC suits against eight former midlevel executives.

Also, the SEC includes allegations about previously known, controversial equipment sales to Calpoint and KMC, as well as problems with its phone-book and wireless divisions.