CalSTRS Sues Qwest, Bankers Over $150 Million Loss
The CalSTRS California Superior Court suit alleges that the fund invested in Qwest debt and stock sold by the banks and financial services companies at a time when the companies were also involved in transactions fraudulently designed to convey the false idea that Qwest was a financial success.
Named in the suit in addition to Qwest and several officers and directors, were:
- Salomon Smith Barney Inc.
- Citigroup Inc.
- Lehman Brothers Inc.
- Bank of America Corporation
- Banc of America Securities LLC
- JP Morgan Chase & Co.
- JP Morgan Chase Securities
- Merrill Lynch & Co.
The suit charges that the financial companies knew the Qwest’s true financial situation, but lied in order to sell the Qwest debt and stock. The financial companies were reluctant to be truthful because that would interrupt the flow of fees from Qwest for handling its securities business, the CalSTRS suit charges.
The suit named Qwest founder Philip Anschutz and former CEO Joseph Nacchio as defendants. They and other officers were accused of lying about the fact that Qwest was one of the highest revenue producing telecommunication companies in the world to ensure that it met its quarterly Wall Street projections.
The complaint alleges that during its inflated financial run, Anschutz took more than $1.9 billion out of the Denver, Colorado-based company in insider trading, and Nacchio $228 million.
Qwest disclosed in July 2002 that for the years 1999-2001, it had improperly accounted for about 220 transactions worth about $1.6 billion. On October 28, 2002, Qwest also disclosed it would defer $531 million of previously recognized revenue because of improper accounting.
CalSTRS is the third largest US public pension fund with a $94 billion investment portfolio. The pension system serves approximately 715,000 members.
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