Accountant Discusses Auditors
By THE ASSOCIATED PRESS
New York Times
Tuesday, April 11, 2006
DENVER (AP) -- A former Qwest accountant charged with fraud
said Monday that he relied on advice from outside auditors
after federal regulators refused to provide accounting
guidance about booking revenue from fiber-optic network
James Kozlowski also denied the allegations against him in
the March 2005 lawsuit filed by the Securities and Exchange
The method for booking revenue from swaps of capacity on
fiber-optic networks is at the heart of the SEC lawsuit
against Kozlowski and other former Qwest Communications
International Inc. executives. The SEC has said Qwest
booked the transactions as upfront revenue while falsely
claiming to investors that the income was recurring.
In a brief filed in U.S. District Court, Kozlowski's
attorney, Kevin D. Evans, said the accountant and others in
the industry asked the SEC in 1999 for guidance but the SEC
refused to say whether booking the revenue upfront complied
with accounting principles.
''For the SEC now to sue Mr. Kozlowski claiming that he and
other accountants at Qwest got it wrong and, in effect,
attempt to irreparably damage if not destroy this young
man's career, is inexcusable,'' Evans wrote.
SEC attorney Robert Fusfeld did not immediately return a
telephone call seeking comment.
Kozlowski participated in a number of fiber-optic network
capacity swaps, referred to as IRU transactions, while he
was an accountant for Qwest from April 1998 to September
During that time, he received advice from two outside
independent auditors, KPMG and Arthur Andersen, which said
the transactions could qualify for upfront revenue
recognition, Evans said.
The SEC has said Kozlowski, former Qwest CEO Joseph Nacchio
and five other former executives orchestrated a financial
fraud that concealed the source of billions of dollars in
revenue that Qwest later was forced to restate. One
defendant has settled while the case is proceeding against
The SEC said the fraud at Qwest occurred between April 1999
and March 2002, allowing the company to improperly report
approximately $3 billion in revenue that facilitated its
2000 merger with the Baby Bell, U S West.
Last year, Qwest agreed to pay $250 million to settle
separate SEC charges of fraud but the deal did not cover
Denver-based Qwest is the local phone provider in 14
Midwestern and Western states.
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