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Qwest settlement: $400 million

Judge cuts lawyers' share, leaves out Nacchio, Woodruff

Jeff Smith, Rocky Mountain News

Published September 30, 2006 at midnight

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A Denver federal judge Friday approved a $400 million class-action settlement of shareholder claims against Qwest Communications but slashed attorney fees from $96 million to $60 million.

U.S. District Judge Robert Blackburn also denied motions by former Qwest Chief Executive Joe Nacchio and former Chief Financial Officer Robert Woodruff to be included in the settlement. Investors want to take Woodruff and Nacchio to trial on civil securities fraud charges.

The settlement fund for investors will total $650 million because it also will include a $250 million penalty paid by Qwest to the Securities and Exchange Commission. Still, the settlement will only pay a fraction of the money lost by investors when Qwest stock plummeted from a high of $66 a share in March 2000 to a low of $1.07 a share in August 2002.

About two dozen institutions and dozens of individuals have opted out of the settlement, with many pursuing separate litigation in hopes of getting a premium over the settlement amount.

Investor groups alleged Qwest and former executives such as Nacchio misled them, inflating company revenues between 1999 and 2002 to keep the stock price artificially propped up. Qwest eventually erased more than $2.5 billion of revenues from its 2000 and 2001 books.

The Association of U S West Retirees had fought the $96 million in attorney fees sought by Lerach Coughlin, the lead law firm for the plaintiffs, calling the fees excessive and tantamount to winning the lottery.

Blackburn's decision to cut the attorney fees means investors will get $36 million more from the settlement than they would have otherwise.

"I'm very happy about the outcome . . . that shareholders will receive something more from this," said Hazel Floyd, a regional vice president of legislation for the Association of U S West Retirees. She credited the group's attorney, Curtis Kennedy, for pursuing the issue and prevailing.

Lerach Coughlin didn't immediately respond to a request for comment.

Nacchio and Woodruff had argued their rights had been subverted by a settlement that excluded them.

But Blackburn disagreed, concluding Nacchio and Woodruff "do not have standing to assert the interests of the plaintiff class (Qwest investors) as a basis to challenge the settlement."

Attorneys for Nacchio and Woodruff didn't immediately return calls for comment.

Many investor groups, as indicated by those opting out, felt the $400 million settlement was inadequate.

Blackburn himself, in reducing the attorney fees, noted the Pennsylvania State Employees' Retirement System had argued that class members would be receiving only about 15 cents per share, not including the SEC payment.

But Blackburn concluded the $400 million was "fair, reasonable and adequate" based on the risks of recovery, an apparent reference to Qwest's testimony about what it could afford based on its financial condition. Qwest's financial condition has improved since the settlement was announced last fall.

"We're pleased the court has approved the fairness of the settlement," Qwest spokesman Bob Toevs said Friday.

Toevs declined to comment on the additional amount Qwest may have to pay to resolve lawsuits filed by investor groups that opted out of the settlement. Qwest had $105 million in reserves for those additional costs as of Dec. 31, 2005, according to a regulatory filing.