Ex-Qwest Exec Pleads Guilty in Fraud Case

DENVER – A former Qwest Communications executive accused in a $34 million fraud scheme pleaded guilty to an accessory count Friday and agreed to help prosecutors, giving the government its first victory in the criminal investigation of the telecommunications giant.

Grant Graham, 38, pleaded guilty to a felony count of accessory after the fact to wire fraud with reckless indifference. Prosecutors dropped eight other charges against the former chief financial officer of Qwest’s global business unit and agreed that Graham would not be required to pay restitution.

“We hope this at least advances closure of this matter on his behalf,” said Graham’s attorney, Dan Sears. “We hope justice is equally spread in the entire matter.”

Graham has agreed to cooperate with prosecutors in their ongoing investigation of Qwest. Sears would not say whether Graham would testify at a new trial for former executive Thomas Hall, one of Graham’s former co-defendants.

Assistant U.S. Attorney William Leone declined comment.

Hall’s attorney did not return a telephone message seeking comment.

U.S. District Judge Robert Blackburn told Graham he could sentence him up to 30 months in prison under federal sentencing guidelines. The plea deal, however, calls for a year of probation and a $5,000 fine. A sentencing date was not set.

The case centers on the government’s allegation that Qwest officials improperly booked nearly $34 million in revenue during a 2001 deal to link Arizona schools to the Internet.

After a seven-week trial, a jury last month acquitted Graham of three wire fraud charges and deadlocked on three counts of wire fraud, three counts of securities fraud, one count of conspiracy and one count of making a false statement.

Two other former executives, Bryan Treadway and John Walker, were acquitted of all 11 charges. The jury deadlocked on the same counts against Hall, who faces a July 7 retrial.

The guilty plea is the first to come out of investigations that prompted Qwest chief executive Joseph Nacchio to quit in 2002 and ultimately led the Denver-based company to erase $2.5 billion in revenue. Qwest provides telephone services in 14 states in the West and Midwest.

Defense attorneys have said their clients were sacrificed by company higher-ups and had been led to believe the Arizona deal met accounting guidelines by colleagues and other officials.

Prosecutors alleged that Qwest reported the revenue from a sale of computer equipment to the Arizona School Facilities Board, which didn’t pay for any of it until six months later.

In a scramble to meet revenue targets, prosecutors said, the defendants cajoled Cisco Systems Inc. into sending whatever equipment it had to a Phoenix warehouse by the end of the quarter. Some of the equipment was not even the right type, witnesses said.

Graham was accused of assigning accountants to find a way to make the transaction fit into accounting rules in a way that would allow Qwest to report the revenue. One of those men, Doug Hutchins, said Graham told him to bypass auditors on a key document in the deal, but later changed his mind.

The accessory charge stems from what the government says was an August 2001 filing to the Securities and Exchange Commission that included the improperly booked revenue.

In a side agreement reached in June 2001, prosecutors said Qwest executives agreed that the Arizona board would not have to pay for the equipment until after its installation and that Qwest would be responsible for any losses.

Graham admitted in the plea agreement that he learned of the agreement in December 2001 but failed to notify the SEC of its existence three months later.

All four defendants and four other Qwest executives have been sued by the SEC, which says they inflated revenues by about $144 million in 2000 and 2001 to meet promises of double-digit revenue growth. That lawsuit has been put on hold pending the criminal trial. The company also faces several shareholder lawsuits.

The U.S. attorney’s office has said its investigation is continuing.

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