Qwest and Bank of America
Accused of Defrauding Retired Teachers
By
Eric Stevenson - Axcess
Business News
The California
Teachers Retirement System, commonly referred to as Calstrs, filed
a law suit Tuesday, Dec 10, in San Francisco Superior Court against
Qwest Communications, (NYSE: Q) Bank
of America, (NYSE: BAC) and
several of the nation's leading banking and financial service firms
for engaging in "fraudulent schemes" that cost the teachers'
fund millions of dollars.
Frankly, the
suit came as no surprise to Axcess Business News. We've been
covering Qwest and Bank of America for some time.
When Wall Street
was up in arms over the "witch hunt" going on amongst
these so called institutions for providing misleading information
to investors, our alert financial columnist, Ms. Freddie Mooche,
had covered the story. You will find several links to articles we've
written on the saga of both Qwest and Bank of America at the bottom
of this page. If I put them all here, it'd look more like a link
directory than a commentary!
Calstrs suit
claims the Teacher's pension fund lost about $150 million in Qwest's
stock that had been sold to the Fund by Bank of America and a host
of others.
Bank of America
was the largest lender to Telco's in the United States amongst banks
here and had over $1.4 billion in outstanding loans to both Qwest
and Worldcom when those two companies fell from grace with S&P.
Frankly, I thing the whole relationship between Qwest and Bank of
America smells.
Calstrs suit alleges that Qwest founder, Mr. Philip F. Anschutz,
took more than $1.9 billion out of the company by means of insider
trading.
The
Suit also alleges that Qwest's Chief Executive, Mr. Joseph Nacchio,
cost the company another $228 million by his insider trading. Way
to go Joe! Taking it out of the mouth's of retired teachers, gee
your a swell guy!
In July, Qwest
disclosed that for the years 1999 through 2001, it had improperly
accounted for over 200 transactions worth about $1.6 billion. In
October, Qwest had announced that it would defer $531 million of
previously recognized revenue because of improper accounting. Axcess
Business News covered that too!
According to
the Calstrs law suit, officers of Qwest falsely represented that
the company was one of the highest revenue-producing Telco's in
the world to ensure that it met its quarterly Wall Street projections.
Here comes the
icing on this cake! The financial companies named in the suit knew
that their statements in registering Qwest Notes (selling debt in
the form of a security) were not true, that they "omitted
material facts and were materially misleading," according
to the suit.
It's strong
language for a law suit when they use the words "omitted material
facts" and "materially misleading." In securities
jargon, that's a real eye opener and you can bet the SEC already
got their hands on a copy of that law suit and are watching those
events unwind.
The Plot
Thickens
Just the week
before Calstrs filed their law suit in San Francisco Superior Court,
Qwest announced that it would seek a dismissal of an earlier law
suit that aims to block a $12.9 billion debt exchange offer the
company unveiled in November.
In the $12.9
Billion swap, bondholders are being offered a greater coupon and
higher place in line as creditors in the capital structure. The
catch is, they must agree to accept new bonds for less than they
paid and with longer maturity dates.
But who are
these bond holders? Mega institutions? Your mom and dad?
On DEC 9 five
of the investment companies in an unofficial bondholders committee
that is attempting to block Qwest's massive debt exchange offer
were identified in court documents. These are: Elliott Associated
L.P.; Franklin Mutual Advisors L.L.C.; Metropolitan Life Insurance
Company; Metropolitan West Asset Management L.L.C. and MFC Global
Investment Management.
According to
an amended complaint filed with court, the five bondholders represent
about $773 million in notes subject to the exchange offer, almost
half of the total debt. The amended complaint stated that, "defendants
(Qwest) have demanded public disclosure of the names solely to harass
members of the Committee and to interfere with their right to protect
themselves from the defendants' illegal exchange offer and other
violations of law and breaches of fiduciary duty."
Qwest's view
is that they, "have a right to know the names of the parties
who are suing us and we intend to abide by any guidelines the courts
put forth with regard to discovery," said spokesperson Steve
Hammack.
This all goes
back to the days before Nacchio's resignation from the board, when
the SEC began its inquiry on Qwest's questionable accounting practices
about the same time Worldcom was collapsing. At that time Qwest
had one shinning jewel in its crown the company, or I should say
Joseph Nacchio, proclaimed could be sold to pay down its outstanding
debt - (and we're talking Bank of America's debt here) Qwest-Dex.
Regulators need
to dig deeper into the Qwest/Bank of America affair. There's
more going on there than a few life insurance companies crying over
the high priced premiums you and I pay them that they invested in
Qwest. Metropolitan Life had most of it! Oh don't worry, if they
loose they'll get it back through higher premiums charged on their
policies!
The fact is
that when US West Communications merged with Qwest the combined
company was in 14 states and that's a lot of regulation! Qwest-Dex's
sale, which Axcess Business News also covered, requires a
myriad of federal and state regulators' approval before it can close.
And who is it that made the best bid? Investment bankers who know
how to take it apart at the seams and sell the peices. Fat chance
of that happening when they discover Qwest Communications problems
are spilling over onto their plans.
Why else would
Qwest Communications be so keen on converting its note holders if
they were so sure of the sale of its Qwest-Dex division? It couldn't
possibly be their good friends at Bank of America politely asking
for a little kiss in their proverbial wallet?
Qwest can be
ruthless in its dealing's and while the Telco giant faces a mountain
of debt its surrounded itself with very savvy lawyers who know how
to fight, especially when the client can pay for it and in this
case it appears the lawyers are going to be the only winners.
With Christmas
approaching I'm sure both Nacchio and Anschutz are warm and cozy,
wrapped in a blanket of green they wove from the "allegedly"
purloined retirement funds of California's teachers. Now there's
a lesson learned, eh?
Related
Articles About Qwest:
Qwest's
Shareholders Loose $40.8 Billion
Qwest Losses Widen Adding to
Shareholders Concerns
Freddie
Blasts Bank of America
Big-Assed
CEO's Heading for the Can
Back to Small Cap Stocks >>
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