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Qwest accountant: SEC's suit is payback
His attorney says the SEC charged James Kozlowski with fraud because he wouldn't give dirt on ex-CEO Joe Nacchio.
By Greg Griffin, Staff Writer
Denver Post
Tuesday, March 21, 2006


Federal regulators charged former Qwest accountant James Kozlowski with fraud last year because he wouldn't "spill the beans" on ex-chief executive Joe Nacchio, Kozlowski's lawyer alleged Monday.

"They really tried to squeeze this low-level person (at Qwest) to try to get him to cough up information on senior executives," attorney Kevin Evans said.  "When he couldn't, they said 'Fine, we'll sue you.' The Securities and Exchange Commission didn't have a reasonable basis to sue James Kozlowski."

In court filings on Monday, Evans said that in December 2004, a high-ranking SEC official told him that Kozlowski had made a "persuasive argument against fraud charges."

The SEC sued Nacchio and 11 others, including Kozlowski, four months later in March 2005.  Some of the defendants have settled.  Others, including Nacchio, Kozlowski and former executives Robin Szeliga, Afshin Mohebbi and Robert Woodruff deny the charges and are preparing for trial.

SEC officials declined to comment on Monday.  SEC attorney Bob Fusfeld, who is handling the case, said the government will respond with its own filing.

A former SEC lawyer and securities law expert said it's highly unlikely the commission would file unwarranted charges.

"The SEC does not charge people they don't have a case against," University of Denver law professor Jay Brown said.  "Cases have to be approved at multiple levels.  What one person (in the SEC) thinks hardly matters."

In its complaint, the SEC alleges that former Qwest executives fraudulently boosted revenues by $3 billion from 1999 to 2002.  One of the ways they allegedly did this was to book revenue from one-time sales of fiber-optic network capacity as recurring revenue.  Revenues from the multiyear deals were booked up front, which the SEC said was improper.

In filings, Kozlowski has said he did not have the authority to set company policy.  In one case detailed by the SEC, Kozlowski was said to have recommended disclosing the deals in the company's 1999 annual report, but later removed the language at a superior officer's request.

Evans requested Monday that the judge allow him to amend his client's response to the charges to include "abuse of process" by the SEC as a defense.

The filings said that accountants for KPMG and later Arthur Andersen reviewed the deals and said they conformed to accepted accounting principles.  That's proof, Evans said, that Kozlowski acted reasonably.

Staff writer Greg Griffin can be reached at 303-820-1241 or at ggriffin@denverpost.com.

http://www.denverpost.com/business/ci_3622754