Qwest quietly settles lingering lawsuits

Resolutions reached with investors over Nacchio-era losses

Jeff Smith, Rocky Mountain News

Saturday, February 3, 2007

Qwest Communications has quietly settled several lingering fraud lawsuits since late December, according to court records.

The settlements mark the latest step in the Denver telco's continuing effort to clear the legal mess stemming from the Joe Nacchio era.

They also come before the March criminal insider-trading trial of former Qwest Chief Executive Nacchio, a trial that could reveal additional embarrassing incidents about the telco in 2000 and 2001.

The most recent settlements are with investor groups that decided against participating in a $400 million class-action settlement because they believed the recovery - pennies on the dollar - was too low.

In general, all the lawsuits alleged that Qwest, under Nacchio, misled investors and artificially inflated financial results. Nacchio has denied wrongdoing.

As reported this week, the California State Teachers' Retirement System, or CalSTRS, recently negotiated a $46.5 million settlement - nearly 30 percent of its estimated losses, many times better than what it stood to get from the class-action settlement.

Qwest paid an undisclosed portion of the settlement, while other payments came from former auditor Arthur Andersen, several investment banks and Nacchio through an insurance company.

Federal court records show Qwest also has settled with the New York City Employees Retirement System, which claimed losses of $300 million, and with Stichting Pensioenfonds ABP of the Netherlands, which alleged losses of more than $100 million. Terms of those settlements weren't disclosed.

The Teachers' Retirement System of Louisiana, which says it lost $23 million, has a tentative settlement with Qwest but hasn't filed the paperwork in court, according to the group's attorney, I. Walton Bader.

Bader also represents the Shriners Hospital for Children, which he said also suffered about $23 million in losses. Bader said there have been settlement negotiations in that case but that the sides still are far apart.

Qwest spokesman Bob Toevs has confirmed the CalSTRS settlement, saying the company is happy to have resolved the matter. But he declined to comment about the other settlements.

Nacchio's attorney, Herbert Stern, was quick to say this week that Nacchio's $1.5 million settlement with CalSTRS came out of insurance money rather than Nacchio's own pocket and that there was no admission of guilt.

Steve Williams, a CalSTRS attorney, responded that what was important to CalSTRS is that Nacchio not use Qwest money for his portion of the settlement.

Williams added that "no one ever admits guilt" in such agreements.

Qwest also faces similar litigation in several state courts around the country, and the status of those cases couldn't immediately be determined.

It also was unclear whether Qwest has enough money in its litigation reserves to cover the recent settlements or has set aside additional money in the account.

Among the settlements

Some of Qwest's recently settled fraud lawsuits:

• California State Teachers' Retirement System, $46.5 million, Qwest's portion undisclosed.

• New York City Employees Retirement System, amount undisclosed.

• Stichting Pensioenfonds ABP of the Netherlands, amount undisclosed.

• Teachers' Retirement System of Louisiana, tentative settlement, amount undisclosed.

smithje@RockyMountainNews.com or 303-954-5155